Warm weather woes hit retailer

Kathmandu's annual winter sale, pictured in Dunedin yesterday, has been undermined by an...
Kathmandu's annual winter sale, pictured in Dunedin yesterday, has been undermined by an unseasonably warm autumn and winter, in both New Zealand and Australia. Photo by Gregor Richardson.
A Kathmandu earnings downgrade is reflecting not only increasing retail competition and the high New Zealand dollar, but some belt-tightening as household debt remains high.

Kathmandu has joined the growing list of retailers announcing downgrades in the face of competitive trading conditions, unseasonably warm weather and the popularity of online sales.

Kathmandu group sales in the past five weeks to June, and in particular since the start of the company's winter sales promotion, had been ''significantly below expectations in both Australia and New Zealand'', chief executive Peter Halkett said.

ASB economist Christina Leung said while consumer confidence had risen, and supported an improvement in retail spending, the retail sector was becoming increasingly competitive.

''Adding to the competitive pressures is the rise of online retailers, which offers consumers an increasing array of choices at competitive prices,'' she said.

Mr Halkett said warmer than expected early winter conditions appeared to be hitting clothing suppliers hard this year.

Some had sold stock at further discounted levels to avoid end-of-season overstocking.

He estimated earnings before interest and tax (ebit) would be down 10%-15% on last year's full-year ebit of $63.4 million.

Kathmandu shares slumped almost 12% after the announcement, trading at $3.14.

Kathmandu joined The Warehouse, which last week downgraded its reported profit range from $67 million-$71 million to $59 million-$62 million, also because of weather issues affecting apparel and home product sales.

The Warehouse said the rest of the winter would likely see some discounted trading, with decreased profit margins, to avoid overstocking.

Craigs Investment Partners broker Peter McIntyre said a ''generational change'' to shopping online was under way, making it difficult for main street retailers.

''Retail is not in trouble, but trading is extremely difficult.''

It was ''crucial'' stock levels were correct so retailers were not left with last season's stock, which had to sold at ''little or no margin'', he said.

Craigs yesterday downgraded its Warehouse recommendation to ''hold'', given it had revised its after-tax profit guidance down about 12%.

Warehouse shares subsequently fell to an 18-month low of $2.99, before rebounding above $3 yesterday.

While full-year 2013 had shown positive momentum in retailing, full-year 2014 was seeing a return to declines in earnings and profit margins, Craigs research said.

Ms Leung said retail spending would continue to grow as the improving labour market encouraged households to make big-ticket purchases.

''However, with household debt as a proportion of income still at high levels, retail spending growth will likely be modest relative to the heydays of 2004 and 2005,'' Ms Leung said.

First-quarter inflation data had highlighted the competitive nature of the retail environment and discounting was seen across a range of imported household items, including clothing and footwear, she said.

Mr Halkett said the winter weather pattern to date had not been conducive to sales of core Kathmandu cold-weather items, such as down jackets and fleece and thermal items.

July is the last trading month of Kathmandu's financial year, and historically its third-largest trading month, but would probably not be sufficient to make up the earlier sales shortfall, he said.

Ms Leung said the high New Zealand dollar had put downward pressure on the price of imported household items in the past year and the increasing popularity of online retailing was speeding up the effects of the high kiwi on prices at the retail level.

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