Kathmandu sees first-quarter margins shrink, flags lower first-half profit

Kathmandu Holdings, the outdoor goods retailer, said it expects first-half margins to shrink as it discounts more items to clear shelf space. The shares fell.

Margins in its first quarter through to October were over 5 percentage points lower than the previous year, the Christchurch-based company said in a statement.

"We now expect overall gross margin for the first half of FY2015 to be below the previous year's result," acting chief executive Mark Todd said. "However our first half-year profit remains highly dependent on the more significant Christmas trading period from now to 31 January."

Retailers, particularly those in the rag trade, have been struggling to produce earnings growth, as international online sellers lure bargain hunters with cheaper products. Outside of Australasia Kathmandu is focusing on boosting its own online sales rather than expanding its physical store network, in order to capture some of the global market.

As at Nov. 16, year-to-date sales had risen 19 percent to $84.1 million on actual exchange rates while same store sales were up 16 percent on a constant exchange rate.

"Sales made in the post-Winter clearance campaign in August and September were above our expectations, and this was the primary reason for the strong same store sales outcome," Todd said. "Offsetting this result was the impact on gross margins from the pricing in that campaign, which focused on moving excess winter season stock out of the business."

Shares of Kathmandu fell 4 percent to $2.86, and have declined some 15 percent since the start of the year.

In September, the retailer posted a 4.5 percent decline in annual profit to $42.2 million, as earnings were hurt by a warmer start to winter, which dented trading of seasonal goods through a period when it holds one of its biggest annual sales, while a strong New Zealand dollar against the Australian currency, where it generates the majority of its revenue, crimped earnings. The company plans to invest $5 million to expand its business in the UK and Europe this financial year, in the first phase of a three-year strategy to build its global brand, which may dent earnings growth.

In August, outgoing chief executive Peter Halkett announced he would leave the business on Nov. 25, after eight years heading the company. A recruitment process to replace him is underway, with Todd will acting as chief executive in the interim, having previously acted in the role last year when Halkett took a leave of absence to recuperate from a severe infection after a routine medical procedure.