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Kathmandu turns to first-half profit, in line with guidance, as margins widen

Tuesday 22nd March 2016

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Kathmandu Holdings, the outdoor equipment chain that fended off a hostile takeover by Briscoe Group last year, turned to a first-half profit that met guidance and said its operating margin widened as it kept expenses under control.

Profit was $9.4 million in the six months ended Jan. 31, compared to a loss of $1.8 million a year earlier, the Christchurch-based retailer said in a statement. Sales rose 9.3 percent to $196 million. The retailer's gross margin widened to 62.8 percent from 59.3 percent.

Profit met the guidance of between $8.5 million and $9.5 million that Kathmandu gave in February, when it also affirmed a full-year forecast of $30.2 million, reiterated today. The full-year 2016 profit forecast would be a 48 percent jump on 2015 when earnings were hurt by aggressive discounting and an unsuccessful Christmas season that weakened the stock price and provoked the takeover offer from Briscoe Group owner Rod Duke. Kathmandu rose 3 percent to $1.71, edging closer to the theoretical $1.80 a share implied at the time Briscoe made its offer in mid-2015. 

"While it is good to be on track with our plan for the first half, as in every year, the full year result is highly dependent on the sales and margin achievement in our Easter and Winter campaigns," said chief executive Xavier Simonet. It was too early to comment on these prospects. "Sustainable growth requires continued cost efficiencies and leveraging existing investments and this will remain a strong focus for management in FY2016 and beyond."

Simonet said gross margins "will come under increasing pressure" in the second half as US dollar hedges mature.

Kathmandu will pay a first-half dividend of 3 cents a share, unchanged from last year, imputed for New Zealand investors and unfranked for Australian shareholders.

Australian sales rose about 12 percent to $124 million, an 8.9 percent gain in Australian dollar terms, while same-store sales on that basis rose 4.3 percent. In New Zealand sales rose 4.6 percent to $68 million, or 3.1 percent on a same-store basis, while UK sales rose 19 percent to $3.6 million, or 1.6 percent in local currency terms. Online sales rose about 23 percent to account for about 6.6 percent of total sales, or about $13 million.

The value of inventory rose to $103.3 million from $97.3 million, which Kathmandu said reflected a strengthening US dollar. Operating expenses rose 1.8 percent to $101 million, but decreased to about 52 percent of sales from 56 percent. Operating cash flow was $24.2 million from a $5.8 million deficit a year earlier. Gearing narrowed to 17.9 percent from 22.6 percent.

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