The Incredible Rebound of Step One Clothing

Step One Clothing is an Australian company founded in 2017 by Greg Taylor, a former elite rower who represented Australia in under-23 world championships. Taylor started the company to solve issues he experienced with traditional cotton underwear such as chafing and constant need for adjustment.

Step One's underwear is made from organically grown and certified bamboo fibre sourced from China, which Taylor found provided more comfort. The products are manufactured in China and Vietnam, with the bamboo fabric using 65% less water than cotton, giving the brand strong environmental credentials. The company sells solely through Ecommerce and does not have a brick-and-mortar retail presence. Its marketing approach and promise of a "no chafing" experience helped drive rapid growth and customer loyalty, with 45% of sales coming from repeat purchases.

Within a few years of launching, Step One had captured 6% of the Australian men's underwear market, had over 600,000 customers, and annual revenue exceeding $35 million. Sales accelerated further during COVID-19 lockdowns in 2020. By the end of that year, revenue hit $35 million, up from $14 million in 2019 and $4 million in 2018.

In early 2021, as it continued its rapid growth, Step One began exploring options to raise capital to fuel further expansion, including a potential IPO. It launched in the UK market in 2020 which was showing promising growth.

By May 2021, Step One had selected an advisor to lead its IPO process. A non-deal roadshow indicated strong investor interest, with Step One positioned as a fast-growing, ESG-friendly Ecommerce player. Revenue was projected to hit $76 million in FY2021.

In preparation for listing, Step One recruited former NRL and FFA chief executive David Gallop as chairman. It lodged a prospectus in October 2021 seeking to raise $81.3 million at $1.53 per share, implying a $287.6 million market capitalisation.

Funds raised were earmarked for expansion into the US market as well as the launch of a new women's underwear range to complement its successful men's line. Founder Greg Taylor sold down his stake from 100% to 66.4% through the IPO.

Step One listed on the ASX on November 1, 2021 and got off to a flying start. Shares surged nearly 80% on debut to close at $2.75. At its peak in mid-November, Step One reached $3 per share, valuing Taylor's remaining stake alone at over $300 million.

However, the strong momentum quickly faded as Step One faced challenges in its overseas expansion and investors were spooked by an accounting issue revealed just before Christmas. Growth in the competitive UK market slowed due to logistics and marketing headwinds, prompting the signing of English rugby player Joe Marler as a brand ambassador. The US launch, which included LA Lakers basketballer Austin Reaves as an ambassador, was also proving tougher than expected. Additionally, Step One disclosed a potential $1.6 million over-claim of GST credits.

By May 2022, Step One issued a major profit downgrade, with EBITDA expected to be 50% below its prospectus forecast. The stock crashed to a low of just $0.22, over 90% below its IPO price, giving the company a mere $39 million valuation.

Step One worked to turn things around in 2022 by cutting costs, improving logistics planning, using more social media influencers for marketing, and pinning growth hopes on its new women's range. It achieved profitability again in the December 2022 half-year. The company also lifted prices by 6.5% in May 2022 to combat inflation in raw materials and higher transport costs while targeting the hiking, camping, and outdoor activities segment to attract new customers.

The real breakthrough came in 2023 from success in the women's fitness/athleisure segment and partnerships with sporting celebrities. Sales of women's products jumped 54% that year, now accounting for 14% of total sales. Netball stars like Gretel Bueta became both brand ambassadors and shareholders. Other athlete backers included cricketer Chris Lynn, basketballer Will Magnay, and champion sailor Jimmy Spithill.

This strategy propelled a major recovery in Step One's fortunes. By February 2023, Step One had 1.24 million total customers, adding 136,000 new customers in the December 2022 half-year alone.

By September 2024, its shares had risen six-fold from the 2022 low to trade above the IPO price again, giving it a $310 million valuation. Women's underwear now made up 14% of Step One's $84.5 million in annual sales. As of September 2024, the company trades at a very strong 3.3x revenue multiple, and a 15.7x EBITDA multiple.

In late 2024, Greg Taylor sold $30 million worth of shares at $1.70 each via Morgans, reducing his stake from 67% to 58%. Executive director and chief legal officer Michael Reddie now owns 3%.

While Step One's ASX journey has been a roller coaster, the decision to expand into the women's market appears to have revitalised the business. With continued growth, high-profile backing from sports stars, and a loyal customer base, founder Greg Taylor maintains his ambition to make Step One a leading international player in the bamboo underwear space.