Outdoor sporting goods chain Kathmandu booked a healthy gain in sales for the past financial year but margin erosion continues to plague profits, which slumped more than 10%.
For its full year to July, total Kathmandu store sales were up 13.4% at $347.1 million and its customer Summit club gained 30% more members.
However, Kathmandu's operating expenses were up 18%, from $129.2 to $153 million, the gross profit margin declined from 65.5% to 63.2%, earnings before interest and tax fell 10.9% from $64 million to $57 million and after-tax profit dropped 10.7% from $39.1 million to $34.9 million.
Kathmandu shares climbed 3.5%, or 6c, to $1.76 after the announcement, which included confirmation of a 7c dividend, taking the year total to 10c per share.
Kathmandu chief executive, Peter Halkett, said the full year 2012 result was "solid", given the economic climate and forecast an expected improvement in performance in 2013, so long as there was no further deterioration in economic conditions.
Craigs Investment Partners broker Peter McIntyre said "key" to the results, was Kathmandu noting New Zealand had outperformed Australia, in same-store sales growth, as relative first-half Australian sales performance had generally been weaker in states not directly benefiting from activity in the resource sector activity.
He noted that along with many other retailers, who were booking stable or increasing sales, but eroded balance sheets, margin retention in the face of rising operating expenses was a big concern.
"At the moment they are working hard just to maintain where they are," Mr McIntyre said.
Mr Halkett said the gross profit margin reduction of 2.3% was within Kathmandu's target range of 62% to 64% and was mainly due to the cost of a new loyalty incentive structure for Summit members. Mr McIntyre cautioned margin erosion was at present "continuing to follow through" with many retailers, especially in expenses such as rising rents and the need for store refurbishments.
Capital expenditure was almost doubled, from $11.9 million a year ago to $21.8 million, largely for store relocations and refurbishments, plus expenditure on infrastructure and systems.
Mr Halkett said several major infrastructure projects were completed during the year, including a new distribution centre for New Zealand. The "key" systems investment was the new online platform, which is about to be launched.
Total inventory held by retailers can be crucial, and Kathmandu's increased by 35.7%, or $19.3 million, but this was mainly from planned investment in product range growth and earlier deliveries of new season product, Mr Halkett said.
Total net debt at July increased by 21% on the previous year because of funding needed for the earlier delivery of inventory.
The ratio of net debt to net debt plus equity increased slightly, to 15.7%, which Mr McIntyre described as "low".
Kathmandu
• Permanent stores at July; up from 110 last year to 120 this year.
• Australia - 72 stores. Sales up 16% to $214 million
• New Zealand - 42 stores. Sales up 14.3% to $127 million
• United Kingdom - 6 stores.
• Sales down 7 % to $7 million
