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Kathmandu upgrades interim profit forecasts as sales, margins rise

 Kathmandu's decision to fight off a hostile $324 million takeover offer has been vindicated following a strong rebound in sales and earnings over Christmas and January, shareholders say.

Kathmandu shares jumped 11.5 per cent or 16¢ to a two-month high of $1.54 on Monday after the outdoor clothing retailer upgraded first-half profit forecasts.

The company now expects earnings before interest, tax, depreciation and amortisation between $NZ21 million ($19 million) and $NZ22 million for the six months ended January 31 – well above market consensus forecasts about $NZ8.9 million and EBITDA of $NZ6.8 million a year ago.

Earnings before interest and tax are expected to be between $NZ14.5 million and $NZ15.5 million, compared with consensus forecasts about $NZ1.68 million and reported EBIT of $NZ0.6 million a year ago.

Kathmandu expects to swing to a first-half net profit of $NZ8.5 million to $NZ9.5 million, from the $NZ1.8 million loss in the year-earlier period.

Chief executive Xavier Simonet said the retailer was on track to deliver a full-year net profit of $30.2 million, compared with market forecasts about $28 million.


But the final result would depend on trading in the six months ending July, when the company is expected to generate 55 per cent of sales and between 65 and 70 per cent of earnings.

First-half total sales rose 9.1 per cent to $195.7 million and same-store sales rose 3.8 per cent on a constant currency basis – slightly below the 4.8 per cent same-store sales growth in the first quarter.

Gross margins up

Gross margins rose 360 basis points as the company sold more products at full price after clearing excess stock and reducing the number of clearance sales.

"Top line sales growth was in line with expectations, but crucially it was profitable growth achieved through an improved gross margin outcome and realising planned cost efficiencies," said Mr Simonet, who was previously chief executive of British retailer Radley & Co and who earlier spent 10 years with luxury retailer LVMH.

Mr Simonet joined Kathmandu in July, on the same day that Briscoe Group made a $NZ1.80 ($1.60) a share takeover offer.

Shareholders said the solid results showed that Kathmandu's business model was not broken, as claimed by Briscoe's managing director, Rod Duke.

Mr Duke planned to leverage the Kathmandu acquisition to transform Briscoe into a $900 million trans-Tasman sporting, clothing and homewares operation.

But Briscoe was forced to abandon the bid in September after failing to convince Kathmandu's major shareholders to sell their shares.

Shareholders denounced the offer as opportunistic – coming as it did after several senior management changes – and were reluctant to swap shares in the global brand for shares in a small, illiquid New Zealand retailer 80 per cent owned by Mr Duke.

"Six months ago Briscoe was adamant the company would continue to report poor results," one shareholder said.

Mr Duke still owns 20 per cent of Kathmandu's shares and investors believe he may make another offer at a higher price.

Kathmandu's audited half-year results are scheduled for release on March 22. The retailer's net profit fell 52 per cent to $NZ20.4 million in 2015 after same-store sales slipped 1.9 per cent to $NZ409 million.