Retail store news : Kathmandu (NZ) FY12 Margins Hurt by New Customer Loyalty Incentives

New Zealand-based outdoor retailer Kathmandu Holdings Limited reported sales reached NZ$347.1 million ($305mm), up 13.4 percent in the fiscal year ended July 31.

Gross profit grew by 9.4 percent to NZ$219.5 million ($176mm), or 63.2 percent of sales, down 230 basis points from fiscal 2011, but still within the company’s target range. EBIT declined 10.9 percent to NZ$57.0 million ($46mm), or 16.4 percent of sales compared to 20.9 percent of sales a year earlier. Net profit after taxes declined 10.7 percent to NZ$34.9 million ($28mm).

For the full year same store sales growth was 5.7 percent (7.0 percent at comparable exchange rates). Online sales are growing rapidly from a relatively small base. The company opened 10 new permanent stores and sales to Summit Club members continued to rise at a faster rate than the overall rate of increase in sales.

“This was a solid result given the difficult economic environment,” said Kathmandu Holdings Limited CEO Peter Halkett. “It was pleasing to achieve positive same store sales growth throughout the year. The second half year EBIT of $44.3m was an improvement on last year following a difficult first half. It was also a year in which we lifted our investment programme to deliver future growth.”

Margin reduction was primarily due to the cost of a new loyalty incentive structure introduced in FY12 for our Summit Club members. Summit Club membership grew by over 30 percent in the year.

Same-store sales grew 9.2 percent in New Zealand and 6.5 percent in Australia, which generates nearly 62 percent of sales during the fiscal year. Same-store sales declined 7.7 percent in the U.K. So far this year, relative sales performance in Australia has generally been weaker in those states not directly benefitting from activity in the resource sector.
Kathmandu opened five new permanent stores in the second half (following five in the first half), including four in Australia and one in New Zealand.
In the first half of FY13, an accelerated store rollout program will have nine new stores open, all in Australia, compared to five in the same period last year.

UK expansion to focus on e-commerce
“To support our strong growth in online sales we are about to launch a new platform to deliver an improved customer experience in existing markets, and to enable us to pursue global sales opportunities through this channel” said Halkett. He commented further that future sales growth in the UK market will be targeted via the online channel rather than building a larger store network.
Kathmandu’s operating expenses increased by 190 bps as a percentage of sales. Expenses in the second half year decreased as a percentage of sales by 30 bps. In the first half, one off expenditure arose primarily from dealing with issues encountered following the implementation of our new warehouse management systems, as well as higher costs associated with relocation of key new stores, including rent.
“We also took steps during FY12 to reduce our UK cost base by outsourcing warehousing and distribution to a third party service provider and restructuring our support functions,” said Halkett. “The expense incurred in FY12 as a result of these actions was approximately $1 million.”

( SportsOneSource Media )

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