KMD Brands’ (ASX:KMD) trading update suggests things might be finally looking up!

Group gross margin jumped 258 bps and the board just put portfolio configuration formally on the table

KMD Brands (ASX:KMD) – the company behind retail clothing brands Kathmandu, RipCurl and Oboz; delivered a Q3 FY26 trading update today that did two things at once. It showed the Next Level turnaround is starting to bite, and it announced a full strategic review of the business. Both deserve attention, but the second one is the bigger story.

Group sales rose 5.2% in Q3 and 6.6% year-to-date. Kathmandu was the star with sales up 12% in the quarter and same-store sales up 8.9% on a constant currency basis. Rip Curl held steady at +4%, while Oboz fell 8.9% on wholesale shipment timing rather than underlying weakness.

Gross margin is where the story gets interesting. Group gross margin hit 58.2% in Q3, up 258 basis points year-on-year, with every brand contributing. For a business that spent the last two years apologising for margin compression, that is a real shift in the underlying economics.

Then the board dropped the second announcement. A formal business review examining capital structure, portfolio configuration and other value-creation opportunities, with external advisers to be appointed in the coming weeks. The review wraps up around the FY26 results in September.

Kathmandu is doing the heavy lifting and it is doing it without new stores

Kathmandu’s +12% Q3 sales came despite seven fewer stores year-on-year. That means the growth is coming from same-store performance, not network expansion, which is the harder and more valuable kind of growth.

Gross margin at Kathmandu lifted 233 bps year-on-year and 257 bps compared to the first half. Management credits product mix diversification and tighter markdown discipline. We think the more important read is that the brand is finally selling product customers want at prices that hold.

The winter trade period is still ahead. Insulation sales are already growing, which is the canary in the coal mine for Kathmandu’s most important season. If Q4 holds, the FY26 result will look materially different from FY25.

Rip Curl is resilient, not roaring, and that is the honest read

Rip Curl grew 4% in Q3 but same-store sales actually slipped 0.8% on a constant currency basis. The headline growth is largely a foreign exchange tailwind, with management explicitly noting Middle East conflict, fuel prices and rising rates softened consumer sentiment.

The brand did deliver a 202 bps gross margin improvement, and North America flagship stores continued to comp well. Management expects the North American business to be EBITDA positive by year-end excluding restructuring, which would close out a multi-year reset.

Worth noting, defending recent North American market share gains is now a Q4 priority. That sounds like management quietly flagging a more competitive environment ahead.

The strategic review is the line item the market will actually price

Boards do not announce reviews of capital structure and portfolio configuration in trading updates without a reason. The language is deliberately broad, covering everything from a demerger of Rip Curl, Kathmandu and Oboz to a full sale, asset divestments, or a more aggressive capital return.

The timing is also telling. The review concludes around the FY26 results in September, which gives the board roughly four months to land on something concrete. Combined with the recently completed recapitalisation, KMD now has a cleaner balance sheet to negotiate from.

Our take is that the operating numbers, while genuinely improving, are not the reason this announcement was made today. The review is the signal that the board has lost patience with the public market valuation and is willing to test alternatives.

The Investors Takeaway for KMD Brands

The operational thesis is straightforward. Kathmandu is comping strongly into its key winter season, group gross margin is expanding meaningfully, and the $27.5m cost-out program is tracking. If the winter trade lands, the FY26 result will give the bulls genuine ammunition.

The strategic thesis is more interesting. A formal review with external advisers, wrapped up by September, sitting alongside an improved capital structure, is the kind of setup that often produces a transaction. Whether that is a brand divestment, a demerger or something more dramatic, the optionality has materially increased.

Investors can find more in-depth coverage of ASX-listed consumer and retail names at stocksdownunder. Between now and September, the trading numbers and the review outcome will move the stock in different directions for different reasons. Both deserve a seat at the table.