Kathmandu sales rise but earnings less than forecast

Kathmandu Holdings announced consolidated sales for the year ending July were up 13.9% to $245.5 million, but its expected earnings before interest and tax is lower than forecast.

Sales from all stores were $5.5m more than the forecast issued by the outdoor clothing and equipment retailer at the time of its initial public offering (IPO) last October.

Kathmandu said sales in New Zealand were up $9m, or 10.6% from last year to $94.1 million. In Australia, sales rose by 14.3% to $A113.3m ($NZ141m), and in the UK sales went up 18.6% to £4.3 milliion ($NZ9.3m).

Kathmandu has opened 14 permanent new stores, four in New Zealand and 10 in Australia, in the June 2009-2010 year, compared to the expected 12 stores stated previously.

"The increased sales derived from the larger than forecast number of new stores, and the operation of three short fixed term lease site stores in the second half year, both contributed to sales performance exceeding prospectus forecast in absolute terms," the company said.

The earnings before interest and tax (ebit) for the year, excluding the one-off $16.8 milliion cost associated with the IPO as reported is expected to be between $47 million and $48 million.

The results would be about 7% to 9% up on the previous year's ebit result, and 5-7% below the forecast of $50.6 million.

Kathmandu said the fall below the projected ebit was because same store sales results were also lower than forecast and it spent more on advertising in the second half of the year in response to market conditions.

The company forecast gross profit margin of about 63% for the year to June, below the 64% prospectus forecast and the 64.4% result in the previous year.

Kathmandu chief executive officer Peter Halkett said "throughout the final four months of the financial year, in all three countries that Kathmandu trades in, the retail environment has been very challenging, and more difficult than we experienced in the first half of (full-year)".

"Given the retail market conditions and a clear downturn in consumer spending we believe the level of promotional activity and our pricing strategies have been the right response for our business. Whilst same store sales performance in the second half year has not met our expectations, we have been very pleased to exceed previous year's ebit performance."

Kathmandu said the travel and adventure market still remained highly attractive with growing rates of participation in outdoor travel and adventure activities.

"Management remain optimistic that Kathmandu's business model and growth strategies will continue to deliver strong earnings growth, and attractive margins over the medium term."

After the announcement Kathmandu shares fell 9c to 185.