Good morning, everyone. Welcome to Step One's first half '26 results conference call.

I'm Greg Taylor, CEO and founder of Step One. I'm joined by our CFO, Nigel Underwood.

We're going through the presentation that was lodged this morning with the ASX, and there'll be time for questions at the end. Turning to slide 2.

There's been a challenging period, and sales and profitability for the first half came in below expectations. The softer headline sales can be largely attributed to our strategic pivot away from deep discounting during sale periods to restore our brand equity, and slower-than-expected clearance of legacy inventory, despite our efforts to clear this product through promotional activity.

Consequently, we're reporting revenues of $36.3 [million?] for the first half, which is down 24.5% against the same period last year.

As a result of the legacy inventory, we've also taken out a one-off $10.9 million provision, which has impacted our profitability. When removing the inventory provision, on an adjusted basis, EBITDA sits at $1 million for the half.

By taking these measures now, we provide a foundation for the implementation and delivery of our reset program. Despite the disappointing financial performance, we are seeing reassuring green shoots.

Our indirect revenue, that's our sales through third-party channels such as Amazon, John Lewis, and social commerce channels, has been notably successful, up 75.9% versus the same period last year, with revenue across that channel growing to represent 18.3%, nearly 20% of revenue for the period, a significant uplift. Our gross margin declined to 73.2% on an adjusted basis as we lowered our pricing in response to customer feedback.

We have continued to listen and evolve with their hustle, and launched seven new products in the first half, including our soft pajamas and new women's period product, which have been popular amongst our customers in early trading. Turning to slide 3.

As we look ahead, our growth strategy continues to be anchored around four core pillars that underpin our reset program and our long-term ambition for the brand. First, on product and range, we remain focused on extending the breadth of our offer in a disciplined way.

As mentioned, in the first half, we launched seven new products. Looking ahead, our priority is to continue expanding into logical adjacencies and diversifying beyond bamboo-based fabrics.

We also remain committed to growing our women's range. With the addition of bralettes, pajamas, and socks over the past 18 months, we're building a more complete offering that positions Step One as part of our customers' broader basewear wardrobe, not just their underwear drawer.

Ultimately, this is about reinforcing our credentials as quality, comfort-first brand and ensuring that we have depth and range to drive repeat purchase and broaden our relevance to customers. Second, customer acquisition and retention remains a core tenant of our strategy, and despite softer revenue numbers than expected, our customer acquisition numbers remain healthy, and our customer database now exceeds 2 million for the first time.

Customer appetite for our products remains strong, and feedback across both our core and product adjacent ranges has been reassuringly positive. In line with our reset, we've been more disciplined with discounting and have continued to invest in brand-led advertising to reinforce Step One's position as comfortable and quality brand.

This is consistent on-brand activity, particularly across social and digital. This is helping us to attract new customers and maintain engagement, even as we shift towards a more sustainable approach to promotions.

Thirdly, as I mentioned on the previous slide, channel diversification is a key priority for us, and the growth we're seeing validates our expansion into indirect channels. Our partnerships with Amazon and social commerce channels have matured, and our presence in John Lewis stores continue to provide valuable credibility and market insights in the UK.

This diversification complements our D2C channels and allows us to extend our reach, brand, and tap into new databases of customers. Finally, on international footprint, of course, Australia remains our foundation.

As we dedicate more time to the UK and US, our intention is to build a stronger long-term presence by prioritizing customer acquisition, brand equity, and channel development over short-term profitability. As with everything in this reset, our approach remains measured and deliberate.

Turning to slide 4. Our overall average value is slightly lower for the first half, yet remains strong at $93, and our customer order mix has been stable, with a strong 65% return rate.

This underlines that our product and brand continues to resonate with customers. We delivered a 4.7% conversion rate, which remains a very strong result by industry standards.

In addition, our customer database has passed 2 million for the first time, representing modest growth in our addressable audience. The remaining charts illustrate the revenue and profit card performance we've discussed.

I'll hand over to Nigel to walk through our financials in more detail. Over to you, Nigel.

Thanks, Greg. Turning to slide 5.

In line with the trading backdrop Greg outlined earlier, revenue for the half declined 24.5% to $36.3 million, driven predominantly by our strategic pivot away from deep discounting during sale periods. Gross profit was impacted by the $10.9 million inventory provision taken in the half, which reduced our reported gross margin to 43%.

On an adjusted basis, excluding the provision, gross margin was 73.2%, down 4.8 percentage points. Advertising costs fell by $2.6 million in absolute terms, but increased to 32.

31.2% of revenue as we continued to invest in brand-led activity to support customer acquisition. Distribution and fulfillment costs increased to 20.6% of revenue, driven by elevated inventory levels and the introductions of an additional 3PL.

As a result, adjusted EBITDA was $1 million for the half, compared with $11.2 million in the prior period. The combination of lower volumes, the provision, and cost pressures resulted in a reported EBITDA loss of $10 million.

Turning to the balance sheet on slide 6. Our balance sheet remains fundamentally strong despite a difficult half, with the business continuing to operate debt-free and holding $24 million in cash and other financial assets at the end of the period.

Inventory on hand increased $2.7 million due to the broader product range and slower-moving lines, although the net inventory balance reduced by the $10.9 million inventory provision we discussed earlier. Overall, after accounting for liabilities and committed purchase orders, we ended the half with $11.4 million of available cash.

The balance sheet remains capital-light, providing a stable foundation as we execute the reset program. Looking at the cash flow on slide 7.

Operating cash flow for the half reflected the softer trading performance, with an outflow of $1.4 million compared to an inflow in the prior period. This was driven primarily by lower receipts in line with reduced revenue, alongside the impact of higher inventory levels in the half.

Dividends totaling $4.4 million were paid in the period, which was down 14.5% relative to the last period. We have maintained our 100% dividend policy, against which payments are expecting to resume when retained earnings returns to a positive balance.

Term deposits with durations exceeding 3 months are classified as investments. The group maintains a strong financial position, with cash and term deposits totaling $24 million, all held with licensed banks.

I will now hand back to Greg to map out our future plans.

Thanks, Nigel. Turning to slide 8.

In the second half, we'll continue to execute our strategic reset plan. Firstly, we'll continue to develop and roll out our new products and adjacencies.

Second, continue to enhance our brand advertising with a heightened focus on digital advertising. Finally, we'll reduce brand discounting to maintain and build our position as a premium brand across our segments.

Looking ahead, our focus is firmly on executing the reset plan by prioritizing product innovation, strengthening brand-led customer acquisition, scaling our indirect channels, and deepening our international footprint. We are laying the foundations for long-term sustainable growth.

The actions we are taking now position the business to emerge stronger, more disciplined, and better aligned to the significant opportunities ahead. I'm confident these initiatives will position Step One well to establish a stronger foundation for sustainable, profitable growth when market conditions improve.

I'll now open the line for questions.

Hey, guys. Obviously, a disappointing result that was materially below our prior expectations.

I did notice that revenue exceeded the guidance that you provided in December. Just wondering maybe if you can talk a little bit to the maybe strength that you saw in December, and I guess why it sort of exceeded your expectations?

Emily, when we set the the guidance in December, we we weren't able to count all of the sales from the Black Friday sale, though we had enough information to provide indicative guidance. They they came in a bit stronger, and we also were clear that it was excluding the Christmas sales, which did did continue quite strong.

Really a a slightly more optimistic outlook on Christmas sales and the last couple of days days of Black Friday. It represents that difference.

Sure. Maybe just a question on the UK.

I guess if you look at the three regions, the UK probably fared the best. Maybe if you can just talk to the performance in the region, and I guess some of the changes you've made over the past sort of 12 months, and the approach to marketing in the region, and maybe just how the performance in John Lewis stores has gone?

Good question. There'd be two factors to that.

Firstly, we are focused on our indirect channels. As I mentioned, those channels across the board are up nearly 80% in the UK and Australia.

Having an increase in those indirect channels, what that does is acts as a base to acquire customers on a cost per acquisition basis rather than a specific cost per acquisition versus a basic cost per customer. That's the first part.

Then second part is we localized our content to match and fit the market. We've been talking about that for a while, and I think there's numbers reflect what we've done.

The two areas there were localized content for the market and growth of our indirect channels.

Great. Then you mentioned the three new product adjacencies that you launched during the half.

Maybe if you can just talk about some of the initial feedback and the traction you're getting so far?

We've released the three. We released period products, ex-cup, and our pajamas, as well as our socks.

From that point of view, we sold out of the socks initially, and also the pajamas were probably our second-best product. Whilst some of the products like ex-cup are not volumetrically valuable to us in terms of what we look at, what they do provide is innovation, and that really sits at the heart of the brand.

It's a logical adjacency for us to go into socks, but also sleepwear then opens the door to us to look at what other adjacencies that can lead to.

Great, thanks. I'll leave it there for now.

Let someone else ask a question.

Good morning, Greg and Nigel. Just a few from me.

Just to start on indirect revenue. I know we sort of touched on it just briefly, but just given the contribution increase, can you sort of talk to the regions this mainly came from?

Then maybe just the progress of those other channels ex-Amazon, like TikTok Shop?

Leo, Amazon did well relatively broadly, proportionate to our share in that market already. TikTok was probably predominant in the UK.

I'd probably say more of the growth in indirect came from the UK, because that was the market we launched TikTok Shop in, and it's probably the market we've got the most expertise on Amazon in. Predominantly UK, but growth rates were reasonably well spread.

Great. Then maybe on logistics costs.

It's just mentioned in the deck, the introduction of additional 3PLs. I guess this would sort of imply maybe a ramp-up in volumes.

Can you give any color on maybe where those 3PLs are located, just regionally or in each market?

UK and Australia. We needed to address some of the issues we were having in previous sale periods regarding our delivery schedule, and we're quite pleased to say that we've resolved quite a number of those issues with our delivery schedule.

Unfortunately it comes with an additional cost, but that additional cost is also related to the large inventory volume we're holding.

Great. Then just the last one from me, just on category performance.

Is there any sort of color you can provide on how the women's range performed versus the men's, maybe in the UK?

We don't split category performance by country, but women's generally has performed sort of commensurate with the men's, if not outperforming it just slightly across each of the markets. The release of new products, I should say, helps that category each time, and obviously the period product assisted the women's category.

Great. I'm happy to leave it there.

Thanks, guys.

Pleasure.

That concludes our first half '26 presentation. Thank you everyone for your time, and we'll speak to you in six months' time.

Thank you, everyone.