Kathmandu forecasts first-half profit will match last year; shares fall

Friday 18th November 2016

Kathmandu Holdings expects first-half profit to be in line with last year's as it struggles to grow sales and maintain margins.

"Through careful management of gross margins and operating expenditure, we remain on track to match last year's first-half profit result despite pressure on sales growth," chief executive Xavier Simonet said in a trading update posted to the stock exchange. He added that the result was "highly dependent" on the more significant Christmas and January trading periods.

Kathmandu shares fell 2.1 percent to a three-month low of $1.84.

The company didn't provide specific figures but in the previous first-half period ended Jan. 31, it posted profit of $9.4 million, sales of $196 million, and a gross margin of 62.8 percent. In the first quarter of its current financial year, covering the 15 weeks ended Nov. 13, the gross margin was lower primarily due to changes in currency rates, operating expenses were lower, and the working capital position had been maintained or improved with lower net debt and stock per store, the Christchurch-based retailer said in its update prepared for delivery at its annual meeting of shareholders today.

Its first-quarter sales fell 0.6 percent, the company said. On a constant currency basis sales rose 2.8 percent. The company's currency conversion rate so far this year was 95.10 Australian cents, compared with 90.80 cents for its 2016 financial year, and 56.50 British pence, from 42.40 pence last year, it said.

"In response to the strengthened US dollar we have been less promotional in the first quarter than for the same period last year," Simonet said. "Combined with a higher mix of clearance and cycling UK store closures, this has impacted on sales in the first 15 weeks."

Kathmandu's annual profit rebounded in 2016 following a slump in 2015 after a build-up of inventory forced it into aggressive discounting at lower margins to rid itself of excess stock. Under the management of new chief executive Xavier Simonet, who was appointed to the role in January 2015, the company has been taking a more cautious approach to sales and keeping expenses under control.

BusinessDesk.co.nz

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