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Kathmandu 1H profit plunges on shrinking margins

Wednesday 21st March 2012

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Kathmandu, the outdoor equipment and clothing retailer, posted a 43 percent slump in first-half profit as a highly competitive market squeezed its margins. The shares fell 4.8 percent.

Profit was $6 million, or 2.9 cents per share, in the six months ended Jan. 31, down from $10.5 million a year earlier, the company said in a statement.

Sales climbed 15 percent to $145.7 million, but heavy discounting led to margins shrinking 2 percentage points to 62.7 percent. Earnings before interest, tax, depreciation and amortisation fell 27 percent to $17 million.

“Sales over the period were very strong, however this was achieved at lower gross margins and incurred higher costs,” chief executive Peter Halkett said. “Following slow Christmas trading, more aggressive promotional and marketing activity was undertaken during January to maximise profits and rate of inventory sell-through.”

In December, Kathmandu warned its first-half earnings would be weaker than in 2011 amid tepid demand in the traditionally busy Christmas period.

Halkett said it was too difficult to provide specific annual earnings guidance given the market conditions, though sales have been improving since Christmas. The lower margins are expected to continue in the second half of the financial year.

The board declared an interim dividend of 3 cents per share, or $14 million, which was unchanged from last year.

The shares fell 9 cents to $1.80 in trading today.

The retailer’s Australian stores, which make up about 60 percent of total sales, lifted revenue 18 percent to A$67.3 million. EBIDTDA slumped 42 percent to A$6.1 million.

New Zealand stores increased sales 14 percent to $54.7 million, with EBITDA down 3.6 percent to $10.8 million, while UK sales fell 14 percent to 1.9 million pounds and made an EBITDA loss of 500,000 pounds.

Kathmandu will continue to roll out new stores in Australasia, with between 11 and 15 new stores flagged for the full financial year.

The company isn’t planning to open any new stores in the UK, and will instead focus future sales growth in the region through its website.

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