Kathmandu says Australasian earnings will grow as it steps up global expansion

Kathmandu Holdings [NZX: KMD], which today posted a 4.5 percent decline in annual profit, said Australasian earnings should rise in the coming year although overall profit at the outdoor equipment retailer may be dented by investment spending.

Net profit fell to $42.2 million, or 20.8 cents a share, in the year ended July 31, from $44.2 million, or 21.9 cents, a year earlier, the Christchurch-based company said in a statement. Profit was near the top end of the company's $39.5 million to $42.5 million forecast.

Kathmandu earnings were hurt by a warmer start to winter, which dented trading of seasonal goods through a period when it holds one of its biggest annual sales. The company plans to invest $5 million to expand its business in the UK and Europe this financial year, in the first phase of a three-year strategy to build its global brand, which may dent earnings growth.

"Providing there is no deterioration in economic conditions, we expected improved earnings from the Australasian business in FY2015, however the overall outcome will be impacted by the UK investment," chairman David Kirk said.

Sales and earnings are expected to increase in Australasia through the next three to five years at least, the company said.

Outside of Australasia, the company will focus on selling its products through online channels rather than expanding its store network, it said, adding there is "long-term significant upside and further opportunity" if positive earnings are achieved from global growth.

Shares in Kathmandu advanced 0.3 percent to $3.16, and have shed 10 percent so far this year.

Sales rose 2.3 percent to $392.9 million. Operating expenses increased 4 percent to $175 million as it increased advertising to boost sales and invested in its online business.

Kathmandu's gross margin edged up to 63.1 percent in 2014, from 63 percent in 2013, within its target range of 62 percent to 64 percent, it said. Margins were unchanged in Australia, improved 50 basis points in New Zealand and declined 230 basis points in the UK as it discounted stock when closing a store.

At the start of the company's new financial year in August and September, trading has been "very strong", supported by a campaign to clear its winter stock, Kathmandu said. Group same-store sales rose more than 30 percent in the period to Sept. 14, it said.

Australasian sales in 2015 are expected to continue to grow at similar rates to 2014, the company said.

In 2014, the company's New Zealand pre-tax profit edged up 1.3 percent to $30.7 million as sales at its 45 stores advanced 2.9 percent to $141 million. Same-store sales were generally ahead of the prior year, apart from a "substantial downturn" during the key winter trading period in June, the company said.

In Australia, pre-tax profit jumped 44 percent to $29.7 million as sales from its 100 stores gained 2.6 percent to $247.3 million. In Australian dollar terms, sales rose 15 percent. The company plans to open eight new Australian stores in the first half of this financial year.

In the UK, the company's pre-tax loss widened to $3.1 million from $2.3 million the year earlier as sales fell 21 percent to $4.7 million after it closed unprofitable stores. Excluding the impact of store changes, sales rose 13 percent, the company said. It had four stores at the end of 2014, compared with five a year earlier.

Kathmandu said a higher New Zealand dollar crimped 2014 earnings by $5.8 million.

It will pay a 9 cent final dividend on Nov.21, taking the annual dividend to 12 cents, unchanged from the year earlier.

The company benefited from a $1.3 million one-time gain in 2014 after an insurance claim was settled in full following the Christchurch earthquakes. The gain includes a writedown of assets that were lost or damaged as a result of the earthquakes. The company had a one-time gain of $293,000 in 2013.

Kathmandu said yesterday its general manager of sales and marketing, Tamalin Morton, would leave the company in December to take a position with another company. It said today a recruitment process is underway for a new chief executive after Peter Halkett said last month he would leave on Nov. 25.

(BusinessDesk)