Kathmandu ends up in 'dog box'

Photo / Natalie Slade

Outdoor retailer loses quarter of market value after it warns of first-half loss following poor sales over holiday.

Kathmandu lost more than a quarter of its market value yesterday after investors punished the outdoor retailer for poor Christmas and New Year trading that will result in a first-half loss.

The stock fell 26.9 per cent to close at $1.47 last night - its lowest level since July 2012 - after the Christchurch-based company said it expected to post a loss of between $1 million and $2 million for the six months to January 31, compared with an $11.4 million profit in the same period a year earlier.

The share price plunge wiped $109 million off the retailer's market capitalisation, which had fallen to $296.2 million by the close of trading.

Since reaching a record close of $4 in May, a string of poor trading updates has knocked 63 per cent off Kathmandu's share price.

"I think they'll be well and truly in the dog box with investors until there's tangible evidence of things turning around," said Mark Lister, head of private wealth research at Craigs Investment Partners. "There probably isn't a lot of faith out there in the story at the moment and I don't think there is likely to be until they can actually show that they've turned things around ... which probably won't be until after that winter period later in the year."

Kathmandu's acting chief executive, Mark Todd, said trading over the Christmas period into January had been below expectations.

"The reduction in same store sales in Australia throughout December and January, and in New Zealand from Boxing Day onwards was disappointing," Todd said.

The company said gross margins had been adversely affected by discounting, particularly in Australia, required to clear excess stock.

Demand for summer and non-technical apparel had also fallen below expectations, while cold weather apparel sales in New Zealand had been reduced by a long period of dry and warm weather after Christmas, the firm said.

Paul Harrison, managing director at Salt Funds Management, which holds Kathmandu shares among its more than $700 million equity portfolio, said the drop in gross margins was disappointing.

"The big question is - is this a one off or is this what we're going to see going forward? "

Todd said over 60 per cent of Kathmandu's sales took place during the retailer's Easter and winter sales promotions, while 70 per cent of profit in the last financial year was earned in the second-half.

Kathmandu said total inventory levels at the end of January were expected to have reduced compared with the same time last year.

The recent promotional activity had been reviewed in light of the poor first-half result and second-half campaigns had been "comprehensively planned for".

The retailer, which did not provide full-year guidance, said sales for the first-half were expected to rise 6.9 per cent to about $179.2 million.

It will report its first-half result on March 24.