The stockmarket was pretty kind to shares in Kathmandu Holdings (KMD) yesterday.
For a struggling retailer which produced what looked like a dud result at the end of what has been a rough year operationally, finished by an unwanted takeover, the market reaction was a bit surprising.
Amid the mining led sell-off, Kathmandu shares spent the day in the green – while giants such as the banks, the big miners and industrials all tumbled.
The shares were up more than 5% at one stage, but retreated with the rest of the market under fire and ended at $1.30, still up 2.3%.
That was on a day when the market was hammered, losing 3.8% in a sell-off that deepened as the day got older.
KMD 1Y – Kathmandu result weak but well flagged
The outdoorwear retailer has struggled with sales growth, margins and its costly expansion plans – senior management was changed and NZ rival retailer Briscoe’s which owns 19.9%, launched a full offer that was ignored by other shareholders.
The move into the UK market is being abandoned in the current financial year – which seems to have been a bull point for investors yesterday, and a lower dividend was another area of comfort. Some investors had been expecting no final dividend and a very weak result.
As it was sales growth was a little less than forecast, but not really a concern.
Kathmandu will pay a dividend of NZ5 cents a share, bringing the full-year payout to NZ8 cents a share, down on the 12 cents paid for 2013-14.
So news of a 52% slide in earnings because of weak sales growth and tighter profit margins was accepted by investors.
Net profit after tax fell from $NZ42.2 million in 2014 to $NZ20.4 million while earnings before interest and tax plunged 48% to $NZ33.3 million.
But at the half year, net profit had fallen to a loss of $NZ1.8 million, and margins were down as the company struggled to clear the unsold inventory.
In fact while the company’s gross profit margin for the year fell to 61.5% from 63.1%, (and 59.3% for the first half), it recovered in the second half to 63.3%, which was probably the best news in yesterday’s report.
Same-store sales fell 1.9% to $NZ409 million in the 12 months ending August 2, while total sales grew 3.7% thanks to 10 new stores.
Same-store sales were weak in Australia, falling 2.7%, but topline sales were up more than 6% as 8 more new stores were opened.
Profit before one-off costs fell 47% , even worse than market forecasts of a 43% drop. But that didn’t damage the shares.
Management blamed soft customer sentiment, excess inventory (mentioned at the half way mark) and higher cost of goods caused by weakened NZ and Australian dollars all contributed to the profit drop.
“The FY2015 result has highlighted the need to review our cost structure and we have taken decisive action on this already,” chief executive Xavier Simone said in yesterday’s statement.
"It also emphasised the need to optimise our pricing strategy and promotional model in order to improve same store sales growth and profitability."
Kathmandu said it would close all four of its stores in the UK by the end of the financial year and focus on international growth through its online store.
Despite the struggles experienced during its expansion, Kathmandu says it remains committed to a target of 180 stores in Australasia.
