14.8% rise in Australia helps Kathmandu's result

Kathmandu's Dunedin store; which along with the company's  139 outlets around the world will be...
Kathmandu's Dunedin store; which along with the company's 139 outlets around the world will be ramping up for crucial Easter and winter sales. Photo by Linda Robertson.

Growth in Australian outlets for leisure and sporting goods retailer Kathmandu spearheaded a strong first-half performance, with Australian sales and after-tax profit coming in higher than guidance.

While Kathmandu is targeting profit growth for its full-year, that is with a cautionary ''on a constant currency basis'', given many analysts are picking parity between the New Zealand and Australian dollars, plus, a backdrop of rising interest rates.

Kathmandu's revenue grew 1% to $167.6 million, and sales for the six months to January were up 14.8% in Australia and in New Zealand 5.6%, while the United Kingdom shops declined from six to four and booked a 33% sales decline.

Group sales overall were up 1%, or $1.7 million, to $167.6 million.

Earnings before interest and tax (Ebit) were up 11.4% from $15.8 million to $17.6 million and after-tax profit up 10.7%, from $10.3 million to $11.4 million, on the same period a year ago.

Kathmandu chief executive Peter Halkett said the first-half result was achieved by continuing strong same-store sales growth, particularly in Australia, combined with improved gross margins and effective management of costs.

''Our focus in the second half of the year will continue to be growing same-store and online sales,'' he said.

The full-year result would continue to be underpinned by sales growth in the Australian market, but he said the Australian stores opening in full-year 2014 were generally lower turnover stores than those which opened in full-year 2013.

''As a result, the profit contribution from new stores will reduce in full-year 2014,'' he said.

He described the New Zealand economic environment and consumer sentiment, as ''currently generally positive'', but there was ''more uncertainty'' in Australia's prospects.

''I anticipate it will continue to be the more challenging retail market during 2014,'' Mr Halkett said.

Craigs Investment Partners broker Peter McIntyre said it was a ''strong result'' from Kathmandu, but noted the strength of the kiwi against the Australian dollar stripped about $2.2 million, or 11%, in lost foreign exchange from its Ebit line.

''They're expecting to be up on profit for the full-year, but there are a lot of currency headwinds out there, especially with so many [analysts and economists] picking parity with the Aussie,'' he said.

In early February Kathmandu shares spiked more than 4% to a 13-month high of $2.30, after the leisurewear retailer predicted its first-half profit could be boosted by as much as 75%, within a band of $9.5 million to $10.5 million.

At the time, Kathmandu said its after-tax profit for the half was expected to be between $9.5 million and $10.5 million, compared with $6 million for the corresponding period a year ago, on the back of a 13% rise in sales to $165.8 million.

Mr McIntyre said net store openings for the period were three, running below his expectations, but Kathmandu had maintained its target for 15 new stores during full-year 2014 and had upgraded its target for Australian and New Zealand stores from 170 to 180.

He said the retail sub-sector of sporting goods and apparel, where Kathmandu and Rebel Sport sat, were doing better than the wider retail arena, where the clothing and shoe brands were struggling, such as results released by Hallenstein Glasson recently.

Forsyth Barr broker Peter Young said Kathmandu was a ''strong operator'' and in the near-term result forecasts were being driven by Australia, plus market share gains, but noted the high kiwi would offset some gains.

He noted there was no full-year guidance provided yesterday by Kathmandu, given the significant influence of Easter and winter sales.

''The outdoor category continues to outperform apparel and has been relatively resilient to the tough Australasian retail backdrop,'' Mr Young said.

While the New Zealand result was largely in line with expectations, in Australia the strong same-store sales growth and margin expansion gained, despite a tough economic background, suggested Kathmandu had gained market share during the period.

On the potential full-year result, Mr Halkett said Kathmandu had only just started its Easter sale, the second of its three largest promotional events each year, so it is still too early to assess what the overall result for the full year may be.

He noted unseasonal weather through the Easter and winter sale periods was always a significant variable influencing the full year's result.



During six months to January. -

• Australia, 81 outlets increase to 90 - 61.4% of sales

• NZ, 42 outlets increase to 45 - 37.2% of sales

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