Kathmandu exits UK market as profit drops

kathmanduKathmandu 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.

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    Brett Stevenson posted on September 29, 2015

    I think one needs to do a lot of reading between the lines on this Kathmandu action. 1. Lets start by being a bit cheeky and asking how many of the Kathmandu Board (I would guarantee their Chairman is there) are in England for the Rugby World Cup. Lets hope they gave the UK more attention prior to this. It would seem not. 2. Reason for the drop in UK performance - "heavy discounting and weaker sales". Isn't the former the trademark pricing methodology of Kathmandu which everyone (even customers) know about. 3. "Need to review our cost structure" - That's shorthand for saying Head Office has been doing it easy and not watching the company very well. I would suggest nothing like a takeover bid from Briscoes to sharpen the management up a bit. 4. Need to "optimise our pricing strategy and promotional model". One presumes that means no more 'heavy discounting' for which Kathmandu is famous. 5. Want to "use a capital light model" to expand which presumably means more online sales YET they also want to grow the retail stores (to180 in A'asia). A little bit of strategic confusion there I would suggest but then again this is the Kathmandu Board here and they are in the UK for the Rugby World Cup so that is to be expected. 6. Do you think the Kathmandu Board members paid for their travel and accommodation to the UK for the Rugby World Cup? No, I don't think so either. They probably have joined a whole throng of Australian public companies that have decided to have their Board meetings in the UK in September and October 2015. That's what you call NOT looking after the shareholders by organising the company around your own personal plans. That is what is called the agency problem in corporate governance, and that's right it is the Boards job to oversee that. Oh well perhaps they can do it over a pint while watching the rugby eh? reply

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