Kathmandu Holdings Limited, New Zealand's dominant outdoor brand and retailer, reported its sales rose 24.5 percent in the year ended July 31, 2011. The company said it will keep open six money-losing stores in the United Kingdom and digest lessons learned there and in New Zeland and Australia before deciding whether to open stores on the West Coast of North America in the coming three to four years, according to a report in the Sydney Morning Herald.

Kathmandu Holdings Limited disclosed the plans to shareholders at its annual meeting, where it provided results for the yeard ended July 31, 2011.
 
Key highlights of the FY2011 results include:
  • Record sales of $306.1 million ($226 mm), a 24.5% increase over FY10,
  • Same store sales growth of 15.7% overall,
  • Gross profit margin was up 230 basis points on FY10, reflecting sales growth primarily coming from apparel categories with associated higher margins. An increasing share (now over 61%) of total sales is made in Australia where Kathmandu earns higher gross margins. Gross margins increased in both Australia and New Zealand in FY11.
  • 100th store opened, total stores now 111, 14 new stores opened, 11 in Australia and 3 in New Zealand.
Kathmandu announced a 32.0% increase in earnings before interest and tax (EBIT) to NZ$64.0 million ($47 mm). Net profit after tax (NPAT), increased from NZ$25.2 million last year (excluding the costs associated with the company’s IPO in November 2009) to NZ$39.1 million ($29 mm).
 
“We have achieved double digit same store sales growth in both Australia and New Zealand, and improved margins despite the well publicised difficult economic environment and the resulting impact on consumer demand in all our markets,” said Kathmandu Chief Executive Officer Peter Halkett. “Our 14 new stores opened during the year have all performed very well and we see continued growth opportunities for Kathmandu as we expand our retail footprint and introduce new products and an updated brand identity to the market over the next year.” 
 
Halkett told investors and analysts that Kathmandu may be in a position to open stores along the west coasts of Canada and the United States in three to four years.

Kathmandu’s operating expenses increased by 120 bps as a % of sales, reflecting increased supply chain expenses due to stock volumes, the full year impact of listed company costs, and expenditure on the brand refresh project. This year’s result also included the cost of management bonuses linked to profit targets, whereas most profit-based incentives were not achieved last year.

The overall result of the strong sales and gross profit margin performance was an increase in EBITDA margin to 23.3% from 22.1% in FY10. EBIT margin similarly increased to 20.9% from 19.7% (FY10 result excludes IPO costs).
Total inventories increased by NZ$16.6 million, reflecting the planned increase in product range, an overall lift in stock investment and growth in store numbers. On a per store basis inventory investment increased by 26% on last year, but was up only 1% on the level in FY09.
 
“The increased investment in stock ensured that we were able to take full advantage of the growth in demand that we were experiencing, particularly in the second half of FY11,”
Halkett said.  “Trading performance in Australia and New Zealand was strong across most of the year and our key promotional activity delivered volume growth at better margins in both countries.
“As we commented in the trading update last month, we made a substantial investment in inventory in FY11, which was a key factor in Kathmandu’s sales growth throughout the year. We were able to meet demand throughout our three key promotional periods, whereas in the previous year we were challenged by limited stock availability, particularly during our Winter sale. We also benefited from colder weather patterns through the second half year, especially in Australia for our Easter sale.
“The over 30 per cent increase in Summit Club membership numbers, and the consistent revenue growth Kathmandu achieved not just in the key promotional periods, but across the whole year, highlighted the growing popularity of the Kathmandu brand and the appeal of our ever expanding product range,” Halkett continued.
During most of 2011 the A$ and NZ$ have been at record highs against the US$, with the A$ in particular being above parity for nearly all of the calendar year to date.
By comparison, in the U.K. there was the combination of a weak economy which suppressed sales and a weak currency. Peter Halkett noted the currency impact had been helpful to the trading performance in the second half year.
 
“The strong currencies had a double benefit. Not only did they assist to minimise that unhedged portion of our cost of imports, more importantly they encouraged a large increase in Australian and New Zealand offshore travel, and of course many of those people are Kathmandu customers,” Halkett said. “So whilst it is clear that consumers have generally been reducing debt and are very cost conscious, we believe those who enjoy outdoor activity and travel have continued to spend money on these pursuits, and have seen the past year as an opportunity to get good value from that spend.”

Summing up Kathmandu’s prospects for the year ahead, Peter Halkett said Kathmandu was confident in its business model, brand and proven growth strategies.

“The current retail environment, and cost pressures both domestically and internationally create a volatile and unpredictable environment. However, given our market position and brand strength we remain well placed for further growth in FY12.
This will be underpinned by:
  • Our ongoing new store rollout programme, 15 new stores targeted in FY12, 4 new sites are already confirmed;
  • Continued product range growth and development;
  • Our new Brand identity and the associated advertising collateral now released to the market, and in association with this;
  • The programme of re-furbishing and re-locating existing stores which in FY12 will involve a number of major city stores;
  • Further enhancements and profile for our online business.”

Peter Halkett concluded his assessment of Kathmandu’s outlook stating “our key growth strategies are working and delivered solid sales and profit growth this year despite a tough environment, so FY12 is really about more of the same”.