"In Australia, our trading performance throughout the Christmas period to date has been below expectations, which is a reflection of negative consumer confidence and a difficult discretionary retail trading environment," Todd said.
"We anticipate challenging conditions in the Australian market may continue for some time, and as a consequence, we are reassessing our sales and pricing strategy for [the second half of the 2015 financial year] and beyond."
New Zealand equities manager at JBWere Rickey Ward said the struggling Australian economy had not helped the retailer.
"Basically it's a profit downgrade but they don't say by how much," Ward said. "The trading update alludes to Australia showing further signs of deterioration and no imminent sign of improvement. Given a large portion of their earnings come from Australia it has taken a bit of a tumble on that," he said.
Kathmandu said sales in New Zealand and the UK were up on last year, and there was potential for improved performance in the last 41 days until the end of the first half of 2015, but it was unlikely to make up for the drop in Australian sales.
"Given the results to date and the widely acknowledged negative consumer sentiment in Australia, Kathmandu anticipates any recovery in trading from now till January 31, 2015 will not be sufficient to make up the shortfall in gross profit experienced to date in [the first-half of the 2015 financial year]," it said.
The company had struggled this year with a warm start to winter resulting in lower sales in one of its busiest sales periods, with the strong New Zealand dollar against the Australian currency also affecting revenue. In September it posted a 4.5 per cent decline in annual profit to $42.2 million.
The announcement from Kathmandu came on the same day as a Westpac McDermott Miller consumer confidence survey, which found that consumer expectations for the New Zealand economy had continued to fall over the year, with 16.5 per cent of respondents expecting good times economically in the year ahead, and 27.2 per cent in the next five years - the lowest since mid 2012.
The survey's overall index fell to 114.8 in the December quarter, from 116.7 three months earlier - its lowest level in over a year and a gradual slide from the peak of 121.7 recorded in March. A reading above 100 indicates more optimists than pessimists.
Westpac chief economist Dominick Stephens said: "For the time being, falling petrol prices and lower mortgage rates appear not to have registered as a positive in consumers' minds."
But the significance of the decline shouldn't be over-stated as consumers remain optimistic for the 10th quarter in a row, Westpac said.
Additional reporting BusinessDesk
