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Kathmandu slows pace of store openings after first-half loss

24 Mar 15

Kathmandu Holdings, which operates 157 outdoor clothing and equipment outlets, is pulling back the pace of new store openings after aggressive price discounting slashed its margin in Australia and resulted in a first-half loss.

The Christchurch-based company posted a loss of $1.8 million, or 0.9 cents a share, in the six months ended Jan. 31, from a profit of $11.4 million, or 5.6 cents a share, a year earlier, it said in a statement. The result is within the company's February forecast for a loss of $1 million to $2 million.

Sales rose 7 percent to $179.4 million while costs increased 18 percent to $99.5 million. The company said expenses were in line with expectations, but lower-than-expected sales meant costs as a percentage of sales increased to 55.5 percent from 50.4 percent a year earlier.

"The first half of our 2015 financial year delivered a disappointing result," said acting chief executive Mark Todd. "The aggressive quitting of excess stock in August and September drove top line sales but at significantly reduced gross margins. Most importantly, our Christmas sale and trading through January did not produce the sales we expected."

Todd said the full-year performance would be highly dependent on sales and margins achieved in the key Easter and winter sales periods and the company had modified its promotional activity "incorporating what we learned from the first half". He didn't provide a forecast.

Kathmandu, which has been ramping up spending as part of a strategy to build a global brand, opened eight new stores in the first half but has cut its full-year target to 11 from 15. It still aims to lift stores in Australia and New Zealand to 180 although it now anticipates a slow start to new store openings next financial year, and said store rollouts will depend on individual returns on investment.

The company retained its plan to invest $5 million a year to expand its UK, Europe and international business over the next three years.

Capital expenditure increased to $9.8 million in the first half, from $8.1 million a year earlier. Spending on new stores increased to $3.8 million from $1.9 million.

In Australia, first-half earnings before interest, tax, depreciation and amortisation slumped 85 percent to A$1.7 million as sales rose 12 percent to A$104.9 million. The company had an additional 18 stores in the first half compared with the year earlier period, taking its total in the country to 108. Its profit margin fell to 1.6 percent from 12.2 percent.

In New Zealand, Ebitda dropped 28 percent to $8.8 million as sales increased 4.7 percent to $65.2 million. Its margin weakened to 13.5 percent from 19.6 percent.

In the UK, the Ebitda loss widened to 1.3 million British pounds from 600,000 pounds in the year earlier period as sales increased 29 percent to 1.5 million pounds.

The company will pay a 3 cent dividend on June 19, unchanged from the year earlier.

Kathmandu's shares fell 1.2 percent to $1.59 and have dropped 25 percent so far this year. The stock is rated a 'buy' according to analyst recommendations compiled by Reuters.

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