Kathmandu will close its United Kingdom stores after its full year profit dropped 51.7 per cent, due to heavy discounting and weaker sales.

Net profit for the 12 months to July 31 was $NZ20.4 million ($A18.48 million), down from $NZ42.2 million the previous year. Earnings before interest, taxes, depreciation, and amortisation were down 36.8 per cent to $NZ47.1 million.

Kathmandu said the reduction in earnings was caused by excess inventory entering FY2015 which required aggressive clearance activity at tighter margins, subdued consumer sentiment impacting the Australian retail environment, and the weakening foreign exchange rate which increased the cost of goods.

Kathmandu CEO, Xavier Simonet, said the results were disappointing and well below expectations.

“The board has taken the decision to exit the UK store network in FY2016. We intend to build on our brand equity and online platform to expand internationally using a capital light model,” Simonet said.

“The FY2015 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.”

Same store sales decreased by 2.7 per cent in Australia and 1.1 per cent in New Zealand. Online sales increased in all countries and now make up 6.2 per cent of total sales.

Kathmandu opened eight new permanent stores in the first half of FY2015, and two more in the second half of FY2015, all in Australia.

“We are committed to our long term target of 180 stores across Australasia. In FY2016 three new stores are confirmed along with relocations of our flagship stores in Melbourne and Adelaide CBDs,” Simonet said.