Kathmandu shares edge up after retailer lifts earnings

UPDATED: Kathmandu Holdings shares edged up after the outdoor equipment chain beat its first-half profit guidance by cutting costs while lifting sales at a time fierce competition is eroding margins for retailers.

Net profit rose to $10 million, or 4.9c a share, in the six months ended January 31 from $9.4 million, or 4.6c a year earlier, the Christchurch-based company said in a statement. That was just ahead of the $9.9 million guidance Kathmandu provided on February 7 and ahead of Forsyth Barr analyst Chelsea Leadbetter's forecast of $9.5 million. The stock rose 0.5% to $1.94.

"It's not a bad result – same-store sales gained in Australia, up 5% and in New Zealand 2%," said Mark Lister, head of private wealth research at Craigs Investment Partners. "Retail is still in a reasonably tough environment at the moment."

Kathmandu sales edged up 0.2% to $196 million as previously projected, and increased 3% on a constant currency basis. The company trimmed operating expenses 1% to $69 million through cutbacks in advertising, support office costs and retail labour, and lowered finance costs by a third to $1.2 million as it cut net debt to $48.9 million.

"The results for the first half of the 2017 financial year were overall in line with our expectations," chief executive Xavier Simonet said. "We achieved strong same-store sales growth in Australia, which is our largest market, as we maintained rigorous cost control and continued to drive working capital efficiency."

Kathmandu's annual profit rebounded in 2016 from a slump a year earlier after a build-up of inventory forced it into aggressive discounting at lower margins to rid itself of excess stock. Under the management of Mr Simonet, who was appointed to the role in January 2015, the company has been taking a more cautious approach to sales and keeping expenses under control.

Gross margins shrank to 61.6% from 62.8% a year earlier as the retailer was on the wrong side of currency movements by some $4 million and large clearance sales squeezed margins. Inventory fell 6.7% to $96.4 million, which the company said was down to more accurate buying as it spent more on its forecasting and planning technology.

Mr Lister said the company has made some headway in addressing some of the strategic issues that were compounded by unfavourable weather but there was still a way to go in "bringing the business back to its former glory" when the shares traded near $4 apiece.

The board declared an interim dividend of 4c a share, payable on June 16 to shareholders on the register on June 2. That's up from a 3c a share payment last year. The dividend will be unfranked for Australian shareholders and fully imputed for New Zealand investors.

Kathmandu's operating cash flow shrank to $10 million in the half from $24.2 million a year earlier. A $6.8 million outflow for investment spending and a $7.6 million outflow to repay debt and dividends left it with cash and equivalents of $2.7 million at the January 31 balance date.

The Australian unit, which accounts for about 61% of sales, lifted revenue 6% to $A121.1 million, although earnings before interest and tax fell 8.7% to $A4.2 million. The New Zealand division's sales increased 0.9% to $68.8 million while earnings slipped 1.7% to $11.9 million. The UK unit, which now has one store after two closures, posted a 58% fall in revenue to £700,000 to break even in the half, compared to a loss of £200,000 a year earlier.

(BusinessDesk)