Kathmandu Holdings announces FY13 first half year

26 March 2013

Kathmandu Holdings announces FY13 first half year

results:

• Sales up 13.1% to NZ$165.9m,

• EBIT up 24.4% to NZ$15.8m,

• NPAT up NZ$4.3m (72%) to NZ$10.3m.

Kathmandu Holdings Limited (ASX/NZX: KMD) today announced earnings before

interest and tax (EBIT) of NZ$15.8 million, for the half-year ended 31 January 2013,an increase of $3.1 million compared with the prior corresponding period.

Net profit after tax (NPAT) increased from NZ$6.0 million to NZ$10.3 million for the same period.

RESULTS OVERVIEW

NZ $m Growth

Half Year ending 31 January 2013 1H FY13 1H FY12 NZ $m %

Sales 165.9 146.7 19.2 13.1%

Gross Profit 104.1 92.0 12.1 13.2%

EBIT 15.8 12.7 3.1 24.4%

NPAT 10.3 6.0 4.3 71.7%

Kathmandu Holdings Limited Chief Executive Officer, Mr Peter Halkett said “there
was strong sales growth over the period; underpinned by successful new store
openings and a solid increase in same store sales, despite a challenging market
overall. Operating expenses were reduced as a % of sales relative to 1H FY12, and this also contributed to 1H earnings growth.”

In the first half year of FY13 same store sales growth was 3.7% (6.1% at comparable exchange rates). Online sales growth (up over 50% on the same period last year)continued to be an important portion of this increase, but still represents less than 5% of total sales. The Company opened 9 new stores in the period, all in Australia, and relocated 3 stores. “Along with the continued growth in online sales, the new stores we opened in a variety of locations and formats have generally met or exceeded our sales expectations” said Peter Halkett.

SALES, STORE NUMBERS AND GROSS PROFIT MARGIN

Sales for half year

ending 31 January 2013

NZ $m

1H FY13

% of

Total

Total sales

growth %*1

Same store

growth %*2

Australia 103.5 62.4% 21.5% 9.6%

New Zealand 59.0 35.6% 7.9% 1.3%

United Kingdom 3.4 2.0% (4.7%) (4.7%)

Total 165.9 100.0% 13.1% 3.7%

1 Calculated on local currency sales results (not affected by year-on-year exchange rate variation).

2 Same store sales are for the 26 weeks ending 27 January 2013.

Australia (9.6%) outperformed New Zealand (1.3%) in same store sales growth.

Kathmandu’s growing market penetration in Australia is a key factor in delivering

improved same store sales growth, which compares to a 6.4% increase for the same

period last year. In New Zealand, the reduced same store sales growth followed a

12.7% increase in 1H FY12.

Permanent stores open 31 January 2013 1H FY13 1H FY12

Australia 81 68

New Zealand 42 40

United Kingdom 6 6

Total Group 129 114

Kathmandu opened nine new permanent stores in the period, all in Australia:

• Stores opened were Carindale, Robina and Mackay in Queensland;

Tuggerah, Coffs Harbour and Pitt St, Sydney in NSW; Fountain Gate in

Melbourne; Morley Galleria in Perth; and Casuarina in Darwin.

• Perth CBD, Richmond (Melbourne) and Nelson (NZ) stores were relocated

during the period.

• Knox and Highpoint (Melbourne) stores were refurbished.

Half year ending 31 January 2013 1H FY13 1H FY12

Gross profit margin % 62.7% 62.7%

Gross profit margin was consistent with 1H FY12 and remained within Kathmandu’s

target range of 62% - 64%. Margins were flat in Australia and slightly reduced in New

Zealand. In the UK, the lower gross margin is due to the higher discounting and

greater clearance activity associated with the planned closure of our Berners St and

Brighton stores.

OPERATING COSTS

Operating Expenses NZ $m & % of Sales

(excluding depreciation) 1H FY13 1H FY12

Rent 22.1m 19.1m

% of Sales 13.3% 13.0%

Other operating costs 61.1m 55.9m

% of sales 36.8% 38.1%

Total 83.2m 75.0m

% of sales 50.1% 51.1%

Kathmandu’s operating expenses decreased by 100 bps as a % of sales. Rental

expense as a % of sales increased primarily due to new flagship stores (Newmarket

in Auckland, and Perth). Other expenses reduced as a % of sales as one off costs in

1H FY12, associated with brand refresh and the impact on distribution costs following

the implementation of our core system upgrade, were cycled out. For the full year, operating costs as a % of sales are expected to be slightly reduced on FY12.

“Active management of operating costs continues to be a key focus and Kathmandu expects to gain further efficiency improvements in the future” said Mr Halkett.

EBITDA margin for the first half year increased from 11.6% to 12.6% and EBIT

margin increased from 8.7% to 9.5%.

OTHER FINANCIAL INFORMATION

NZ $m

Half year ending 31 January 2013 1H FY13 1H FY12

Capital Expenditure 10.7 10.3

Operating Cashflow (5.6) (17.9)

Inventories 84.5 76.8

Net Debt 81.0 85.6

Net Debt : Net Debt + Equity 23.0% 25.1%

We continue to improve our efficient management of major store capital projects and

completed 14 of these projects in the period, compared to 10 in 1H FY12.

Total inventories increased in line with store growth by 10.0%, or NZ$7.7 million and

decreased by 1.7% on a $ per store basis. The effective management of working

capital and improved operating cashflow meant that net debt as at 31 January

decreased by 5.4% on the previous year. The ratio of net debt to net debt plus equity

has decreased slightly at approximately 23.0%.

INTERIM DIVIDEND

Kathmandu confirms that an interim dividend of NZ 3 cents will be paid. The dividend

will be fully franked and fully imputed.

Future years’ interim dividends for New Zealand shareholders are unlikely to be

imputed given full year dividend payout levels will increase in line with profit growth,

which is derived primarily from Australian operations. Final dividends are expected to

remain fully franked and fully imputed.

BOARD CHANGES

The death of our Chairman, Mr James Strong, on March 3rd was a tragic loss, not just

for the Company, but also the wider Australasian business, arts and sports

communities. As a result of James Strong’s untimely passing, John Harvey has been

appointed as interim chairman for the period up until our next Annual General

Meeting. During this period the Board will undertake a review of the make-up of the

Board and determine a permanent appointment of a Chairman. Following the

appointment of Christine Cross in December last year there remain 4 independent

Directors on the Board.

FULL YEAR RESULTS OUTLOOK

Kathmandu’s overall earnings growth for the full year in FY13 is expected to be

underpinned by the continuation of growth in the Australian market, attributable to

improving brand penetration and the performance of new stores opened during the

year. However the key external risks to delivering an improvement in second half

year performance are:

• The success of the two major promotional events in the second half of the year,

particularly if either or both are impacted by unseasonal weather;

• The general economic environment which appears to remain volatile and has

been highlighted until recently by generally low levels of consumer confidence.

Kathmandu’s annual trading pattern means the overall profit result for the year
depends primarily upon the second half year performance and in particular the
Winter sale. Peter Halkett stated “Sales through February and March have been impacted by the hot and generally dry weather in both Australia and New Zealand.

However, as we have only just commenced our Easter sale, which is the second of
our three largest promotional events each year, it is still too early to assess with

reasonably certainty the overall result for the full year”.

Kathmandu continues to target 15 new permanent stores in the full financial year.

Five new permanent store locations are currently confirmed to be opened prior to 31

July 2013: The Glen (Melbourne), Eastgardens (Sydney), Hobart CBD, Pukekohe
and Westgate (Auckland).

In the UK during 2H FY13, two stores are to be closed (Berners St, London and
Brighton) and one new store (Kensington High St, London) is to be opened.

In concluding his assessment of the prospects for 2013 Peter Halkett said “I am
confident in our ability to successfully execute Kathmandu’s growth strategies. In particular the strength of our Australian performance in tandem with effective management of our operating costs should deliver a strong profit outcome for 2013.”

ends

© Scoop Media