Kathmandu Holdings Limited reported same store sales in the six months ended Jan. 31 fell 3.5 percent, but would have increased 5.4 percent if not for the decline of the Aussie dollar. The New Zealand-based outdoor specialty retailer, which derived 61 percent of its sales from Australia during the period, reported sales of NZ$167.6 million ($173mm), up NZ$1.7 million from the first half of fiscal 2013.



In the first half of FY14 same store sales growth was +5.4 percent at comparable exchange rates (-3.5 percent at actual exchange rates). Online sales grew by 49 percent at comparable exchange rates, and this channel continues to provide promising future growth opportunities.

Gross profit margin was 120bps above 1H FY13 and improved strongly on last year in both Australia and New Zealand.

Kathmandu’s operating expenses increased by 30 bps as a percentage of sales. Rental expense as a percentage of sales decreased, assisted by the closure of UK stores. IT investment was the primary reason for other expenses increasing as a percentage of sales. For the full year, operating costs as a percentage of sales are expected to be slightly higher than FY13.



EBIT reached NZ$17.6 million ($14mm) for the six months, up 11.4 percent, or $1.8 million, compared with the prior corresponding period. Net profit after tax (NPAT) increased from NZ$10.3 million to NZ$11.4 million ($9mm) for the same period. Earnings growth (EBIT) would have been $NZ 2.2m higher than reported if a constant exchange rate had applied between FY13 and FY14. Even so, EBITDA margin for the first half year increased from 12.6 percent to 13.5 percent and EBIT margin increased from 9.5 percent to 10.5 percent.


 

“The first half result was achieved through continuing strong same store sales growth, particularly in Australia, combined with improved gross margins and effective management of costs,” said Kathmandu CEO Peter Halkett.

 

 

The retailer opened five new stores in the period, four in Australia and one in New Zealand, and closed two stores. In Australia, Kathmandu’s growing market penetration helped to deliver 6.6 percent same store sales growth, following a 9.6 percent increase for the same period last year. New Zealand’s 3.2 percent same store sales growth compares to a 1.3 percent increase in 1H FY13.

 

Kathmandu opened five new permanent stores in the period, four in Australia and one in New Zealand. Stores opened in Australia were Northland and Uni Hill Outlet in Melbourne, West Lakes in Adelaide, and Jindalee Outlet in Brisbane. In New Zealand, a new store was opened at St Lukes in Auckland.


 

Kathmandu continues to target 15 new permanent stores in the full financial year, including eight that will open by July 31 in Melbourne, Brisbane and Perth. The retailer closed a store in London and an outlet store in Sydney during first half of fiscal 2014.

 

Weak Australian dollar, weather cloud outlook

Full fiscal year results will hinge on sales growth in Australia, where Kathmandu expects new stores to produce less sales compared to those opened in FY13 due to the weakness of the Australian dollar. As a result, the profit contribution from new stores will decline in FY14. The focus in the second half, therefore, will continue to be growing same store and online sales.


“The New Zealand economic environment and consumer sentiment is currently generally positive, but there is more
uncertainty in Australia’s prospects, and I anticipate it will continue to be the more challenging retail market during 2014,” said Halkett. “Nevertheless our increasing brand awareness and profile in Australia makes me confident that we will see on-going sales growth this year.”

 

The current relative weakness in the $A against the $NZ is expected to continue and the full year result for FY14, as reported in $NZ, is likely to be further impacted when compared to FY13.

 

“Trading has continued to be in line with our expectations since the end of January, supported by our uplifted investment in inventory,” Halkett continued. “However as we have only just commenced our Easter sale, the second of our three largest promotional events each year, it is still too early to assess what the overall result for the full year may be.”

 

Unseasonal weather through the Easter and Winter sale periods is always a significant variable influencing the full year’s result.

 

Kathmandu is targeting a higher profits in FY14, after adjusting for the effect of exchange rates.


 

“Looking further ahead our strong financial performance enables us to continue to invest in growing our store network, enhancing our online offering and developing true omni-channel capability to serve our customers,” said Halkett. “We are increasing our focus on global sales potential for the Kathmandu brand.”