Christopher Adams

Christopher Adams is the Markets and Banking reporter for the New Zealand Herald

Kathmandu shares hit new high as rival falters

Kathmandu's share price has hit a new high, as one of its Australian rivals goes into voluntary administration. Photo /  Natalie Slade
Kathmandu's share price has hit a new high, as one of its Australian rivals goes into voluntary administration. Photo / Natalie Slade

Kathmandu shares have hit an all-time-high after administrators were called into a major Australian competitor, which is blaming the NZX-listed outdoor clothing and equipment retailer's aggressive discounting - as well as high rents and labour costs - for the problems facing its business.

Adventure wear seller Snowgum, which operates 17 company-owned and eight franchised stores across the Tasman, went into voluntary administration following a rent dispute with the landlord of one of its stores, according to Australian media reports.

The business is now up for sale.

Voluntary administration involves freezing a company's assets while the administrators and creditors determine its fate.

Kathmandu shares rose more than 10 per cent to hit $4.01 - their highest level since the firm's 2009 listing - yesterday following the Snowgum news, before falling back to close at $3.93 last night.

Snowgum managing director Ross Elliot told the Sydney Morning Herald that Kathmandu, which operates close to 90 stores in Australia, had "perfected the art of pricing a product at an exorbitant retail price then offering it at 60 per cent off to attract buyers".

"The adventure wear category has traditionally maintained integrity in retail pricing, but Kathmandu has changed all that," Elliot said. "The Kathmandu high-low pricing model where products are constantly on 50, 60 and 70 per cent discount, all year round, has forced the whole category to follow suit."

Kathmandu relies on a number of major sale events each year for a large portion of its revenue.

Peter Halkett, Kathmandu's chief executive, was unavailable for comment.

Elliot said rent and wage increases had also badly affected Snowgum and the business had never really recovered from the global financial crisis.

Snowgum, which was founded as the Scout Shop in Melbourne in 1926, has operated several stores in New Zealand but decided to pull out of this country to focus on Australia during the recent global financial crisis.

Salt Funds Management managing director Paul Harrison said the surge in Kathmandu's share price was directly related to the Snowgum announcement.

"The market obviously thinks [the problems facing Snowgum] show that the Kathmandu business model is working in the sense that it can compete in a marketplace where others are struggling," he said.

Harrison said Kathmandu's margins and business model were "fair".

Kathmandu shares have gained 124 per cent in the last 12 months. The company reported a 26.6 per cent lift in net profit to $44.2 million in the 12 months to July 31.

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