Main street sports and leisure retailer Kathmandu has posted a marked profit plunge for its half year, reporting a $1.8 million loss against last year's $11.4 million profit.
As with other retailers, Christmas and January sales were less profitable than expected, a warm winter had left stock inventories high and that stock had to be sold cheaper; in Kathmandu's case its gross profit margin fell from almost 64% to 59.3%.
Kathmandu's sales for the half to March increased 7% to $179.4 million, but its earnings before interest and tax was down 96%, from $17.6 million to $600,000 and after-tax profit slumped 115%, from $11.4 million to a $1.8 million loss.
Online sales, which account for 5.8% of overall sales, were up 33% for the half, led by a more than 90% gain in the United Kingdom.
Kathmandu's acting chief executive, Mark Todd, said the main factor in the result was that the Christmas sale and trading through January did not produce the sales expected.
Trading analysis found Kathmandu's promotional campaigns did not drive the expected foot traffic, some apparel product ranges did not hit the mark with buyers and in Australia there was a ''generally weaker discretionary spend''.
Kathmandu shares were down 2c, at $1.59, following the announcement.
Craigs Investment Partners broker Peter McIntyre said it was a ''weak'' result, and he questioned whether new store plans were providing economies of scale, or were instead a cost burden on the overall business.
Kathmandu has 157 permanent open stores and the target for Australia and New Zealand during full-year 2015 is 180 stores, including 11 new premises during the year, as opposed to 16 new stores planned earlier.
''The uptake in sales [from new stores] is not quick enough to cover the overall profit margin erosion,'' Mr McIntyre said.
He said said many New Zealand retailers were ''in a rut'', now running numerous pre- and post-Christmas sales, seasonal sales and clearances during the year.
''Shoppers are getting `sale fatigue', knowing they'll get a further discount to the sale price in the near future,'' Mr McIntyre said.
Forsyth Barr broker Suzanne Kinnaird said the key driver of the weak trading was its Christmas sale not having met expectations.
''Kathmandu has cited a tough Australian retail backdrop, some apparel ranges not receiving desired traction with buyers and weaker-than-expected foot traffic as a result of its promotional campaigns, as the main reasons behind the disappointing Christmas sale period,'' she said.
She said it was not surprising that Kathmandu was slowing its store roll-out, from 16 to 11 this financial year, given the challenging Australian macro environment.
''Its target store footprint is unchanged at 180 stores,'' Ms Kinnaird said.
The company has indicated a gross profit margin target band of 61%-63% during second-half trading, and thereafter, which is down from its previous target of 62%-64%.
Mr Todd said other contributing factors included the aggressive quitting of excess stock in August and September, which drove top line sales, but at significantly reduced gross profit margins.
''This brought forward some customer purchases that would otherwise have been made at higher margins later in the half,'' he said.
The 4.6% decline in gross profit margin to 59.3% was from the combined large amount of clearance stock in the first quarter, below target sales of higher-margin summer clothing and price pressure in some key product categories.
Stock inventories were down 5.1%, or $5.2 million, to $97.3 million on a year ago.
Mr Todd said foundations were still being laid for future growth at Kathmandu, including investments in systems and continuing brand leadership, and he was ''confident''in developing meaningful international sales.
''As with every year, the full-year result is highly dependent on the sales and gross profit margin performance we achieve in the Easter and winter sales periods. We have prepared carefully for these sales, incorporating what we learned from the first half,'' he said.
