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Kathmandu Profits Decline 51.7 Percent to $20.5 million

Kathmandu Profits Decline 51.7 Percent to $20.5 million
Sep 29, 2015 By Ben Visser

Kathmandu Holdings Limited (ASX:KMD) announced its full FY15 results today with disappointing profits as the retail giant fights to regain momentum.

With all figures in NZ dollars, the company reported earnings before interest and tax (EBIT) of $31.2 million, down 48.4 per cent on the previous corresponding period (pcp). Net profit after tax (NPAT) came in at $20.4 million, down 51.7 per cent on the pcp. Kathmandu’s Board has stated that the final dividend will be 5.0 cents per share, bringing the full year dividend to 8.0 cents per share, a yield of 6.3 per cent at current prices ($1.27).

The company has stated that it was a challenging year and the results were disappointing. There were several factors that contributed to the disappointing results. Excess inventory going into FY15 required aggressive selling in Q1 at lower margins. The company felt pricing and promotional activity during FY15 caused confusions amongst customers and was compromised by clearance activity. The company also increased operating costs in anticipation of sales growth that did not eventuate. Profits were also impacted by subdued economic sentiment affecting the Australian retail environment and a weak foreign exchange rates increased the cost of goods.

Kathmandu Chief Executive, Xavier Simonet commented, “The results for FY2015 were disappointing and well below our expectations. After a challenging first three quarters, our Winter promotion delivered improved same store sales and gross margin results year on year, which was a significantly better outcome than our Christmas and Easter promotions. Summit Club members responded to a shift in promotional strategy which focused on new products and highlighted features and benefits, rather than a price and discount message.”

Having joined Kathmandu in July 2015, Mr Simonet has stated that the company remains committed to its long term target of 180 stores across Australasia, with three new stores confirmed as well as relocations of the flagship Melbourne and Adelaide CBD stores. The Board has also decided to exit the UK sore network in FY16, choosing instead to build its brand equity and online platform to expand internationally.

Mr Xavier commented, “The FY15 result has highlighted the need to review our cost structure and we have taken decisive action on this already. It also emphasised the need to optimise our pricing strategy and promotional model in order to improve same store sales growth and profitability in existing stores. These levers will remain a strong focus for management in FY2016.”

The company remains committed to its FY16 forecasts.


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Ben Visser Author: Ben Visser Sep 29, 2015

Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.

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