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Kathmandu shares rise on earnings guidance

Wednesday 19th January 2011

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Kathmandu Holdings's share price rose 30 cents, or 16.7%, to $2.10 in afternoon trading after the outdoor equipment retailer said its interim earnings will be 20% to 26% higher than last year on the back of a strong summer holiday season trading.

Kathmandu chief executive Peter Halkett said a strong sales performance in December and so far in January in both Australia and this country, coupled with improved gross margins were the primary reasons for the earnings guidance.

The company declined to detail the improvement in gross margins, or say what drove it, but it has a gross margin target of between 62% and 64%.

Kathmandu's result for the six months to January 31, 2011 will be released on March 17. The company traditionally earns 58% of its income in the second half of the year.

The company said group sales for the six month period will be in the range of $124 million and $126 million, up between 16.3% and 18.2% on the previous comparative period.

The same store sales increase will be between 8.9% and 10.3%, or 7.5% and 8.8% at constant exchange rates.

The sales numbers gave the company confidence to predict interim earnings before interest and tax of between $18.5m and $19.5m, up 20% to 26% on the previous comparative period.

Brokers are updating their forecasts for the annual result in reaction to today's statement.

"They are not saying what the gross margin is but we have got high currencies in both Australia and New Zealand and clearly that is part of the story," one broker said.

The company imports a lot of its product from China.

The broker said that winter was the company's biggest sale period. "The second half will be important for them."

The share price is near the A$1.70 (NZ$2.20) investors paid when the company listed on the ASX and NZX in November 2009.

Kathmandu's first year of trading as a listed company co-incided with a period of weak consumer confidence and reduced discretionary spending and its first annual result was slightly below initial public offer forecasts.

Kathmandu's sales figures contrasted with those achieved by discount retailer The Warehouse Group, which experienced a 2.7% fall in sales for the two months ended January 2, 2011. Same store sales were down 3.8%. The Warehouse said that retail sales in general have been weak and it expects the retail sector to remain difficult and highly promotional driven in its 2011 financial year.

Many retailers, including Kathmandu, ran big sales in the period before Christmas.



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