Kathmandu Holdings Limited, which operates 114 outdoor specialty stores in Australia, New Zealand and the United Kingdom, said heavy discounting caused earnings to fall by a third despite a 15 percent increase in sales during the six months ended Jan. 31. The retailer sees the discounting continuing in 2012.

Kathmandu reported sales rose 15.4 percent to NZ$146.7 million ($117mm), while gross profit rose 11.9 percent to NZ$92 ($73mm), or 62.7 percent of sales, down 200 basis points from a year earlier but still within the company’s target range.

Earnings before income taxes fell 36.2 percent to NZ$12.7 million ($10mm) compared to the same period a year earlier. Net profit after tax (NPAT) was NZ$6.0 million ($5mm), compared to NZ$10.5 million ($8 mm) a year earlier. Margins were reduced in all three countries due primarily to the proportionally greater volume of sales made at lower margin due to higher discounting and greater clearance activity.
The company anticipates that the very competitive retail environment will continue to necessitate competitive retail pricing in order to maintain sales growth and market share. This means lower gross margins are likely to continue in the second half year in comparison to FY11.

Sales rose 18.1 percent to NZ$88.3 million ($70mm) in Australia, 13.7 percent to NZ$54.7 million ($44mm) in New Zealand, but declined 13.6 percent to $NZ3.7 million ($3mm) in the United Kingdom.