Ann: HALFYR: KMD: KMD: Kathmandu Half Year (1H12)

• Release Date: 21/03/12 11:29
• Summary: HALFYR: KMD: KMD: Kathmandu Half Year (1H12) results
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KMD
21/03/2012 09:29
HALFYR

REL: 0929 HRS Kathmandu Holdings Limited

HALFYR: KMD: KMD: Kathmandu Half Year (1H12) results

KATHMANDU HOLDINGS LIMITED

ASX/NZX/Media Announcement
21 March 2012

Kathmandu Holdings announces FY12 first half year results:

o Sales up 15.4% to NZ$146.7m,
o EBIT down 36.2% to NZ$12.7m,
o NPAT down NZ$4.5m to NZ$6.0m.

Kathmandu Holdings Limited (ASX/NZX: KMD) today announced Earnings before
interest and tax (EBIT) of NZ$12.7 million, for the half-year ended 31
January 2012, a decrease of $7.2 million compared with the prior
corresponding period. Net profit after tax (NPAT) decreased from NZ$10.5
million to NZ$6.0 million for the same period.

RESULTS OVERVIEW

  Growth
Half Year ending 31 January 2012:
NZ $m       1H FY12 1H FY11 NZ $m %
Sales      146.7 127.1 19.6  15.4%
Gross Profit 92.0 82.2 9.8  11.9%
EBIT      12.7 19.9 (7.2) (36.2%)
NPAT       6.0 10.5 (4.5) (42.9%)

Kathmandu Holdings Limited Chief Executive Officer, Mr Peter Halkett said
"sales over the period were very strong; however this was achieved at lower
gross margins and incurred higher costs. Following slow Christmas trading,
more aggressive promotional and marketing activity was undertaken during
January to maximise profits and rate of inventory sell-through. Additionally
net profit was impacted by one off costs associated with our core system
upgrade and our brand refresh project."

In the first half year of FY12 same store sales growth was 8.0% (7.8% at
comparable exchange rates). Online sales growth (up over 50% on the same
period last year) was a small but important portion of this increase. The
company opened 5 new stores and sales made to Summit Club members, the
company's customer loyalty programme, rose at a faster rate than the overall
rate of increase in sales. "Our target and expectation is to have one million
active Summit Club members across New Zealand and Australia within two
years", said Peter Halkett.

SALES, STORE NUMBERS AND GROSS PROFIT MARGIN

Half year ending 31 January 2012:

NZ $m 1H FY12 % of Total Total sales growth %*1 Same store
growth %  1H FY12 # of new stores
Sales - Australia 88.3 60.2%  18.1%   6.4% 2
Sales - New Zealand 54.7  37.3%   13.7%  12.7% 3
Sales - United Kingdom 3.7   2.5% (13.6%) (13.6%) 0
Total       146.7 100.0%  15.2%   8.0% 5
1  Calculated on local currency sales results (not affected by year-on-year
exchange rate variation)

New Zealand outperformed Australia in same store sales growth, consistent
with reported retail statistics for each country. Kathmandu's relative sales
performance in Australia has generally been weaker in those states not
directly benefitting from activity in the resource sector. Peter Halkett also
noted that "Our UK sales shortfall was primarily in December, which was not
surprising given it was a month which in 2010 was both one of the coldest
ever Decembers on record, and just prior to the VAT increase to the current
20% level".

Permanent stores open 31 January 2012:
   1H FY12 1H FY11
Australia  68  58
New Zealand  40  36
United Kingdom  6   6
Total Group 114 100

Kathmandu opened five new permanent stores in the period, two in Australia
and three in New Zealand:

o Warrnambool VIC and Chatswood (Outlet) in Sydney. A new Chatswood store
opened in the Westfield mall and the existing store was converted to an
Outlet.
o Coastlands (north of Wellington), The Palms (Christchurch) and Wellington
CBD (Outlet). As with Chatswood, a new flagship Wellington store was opened
and the existing store was converted to an Outlet.

Additionally the Camberwell (Melbourne) store was re-located prior to
Christmas, and Kathmandu plans to close the existing site. Similarly the
Newmarket (Auckland) store opens in a new location at the end of March.

Kathmandu now expects to open between 11 and 15 new permanent stores in the
full financial year. The following new Australian permanent store locations
are expected to be open prior to 31 July 2012: Tamworth (NSW), Moorabbin DFO
(Melbourne), Shellharbour (NSW) and The Rocks (Sydney). Two or three other
sites are currently under negotiation.

No new stores are planned for the UK at this time. Future sales growth will
be via increased activity supporting our enhanced UK internet site, due for
launch early next financial year. Peter Halkett said "we have also taken
steps to reduce our UK cost base by outsourcing warehousing and distribution
to a third party service provider. Other initiatives are underway to further
reduce the current cost structure."

Half year ending 31 January 2012:
    1H FY12 1H FY11
Gross profit margin % 62.7% 64.7%

Gross profit margin reduced by c. 200bps, although it was still within
Kathmandu's target range of 62% - 64%. Margins were reduced in all 3
countries that Kathmandu trades in, primarily due to the proportionally
greater volume of sales made at lower margin due to higher discounting and
greater clearance activity. Looking ahead, it is anticipated that the very
competitive retail environment will continue to necessitate competitive
retail pricing in order to maintain sales growth and market share. This means
lower gross margins are likely to continue in the second half year in
comparison to FY11.

OPERATING COSTS

Operating Expenses NZ $m & % of Sales (excluding depreciation)

         1H FY12 1H FY11
Rent        19.1m 15.3m
% of Sales     13.0% 12.0%
Other operating costs  55.9m 43.7m
% of sales     38.1% 34.4%
Total         75.0m 59.0m
% of sales     51.1% 46.4%

Kathmandu's operating expenses increased by 470 bps as a % of sales. An
increased advertising spend, higher occupancy costs, and an increase in
distribution costs were the major contributors to this % change. Retail
salaries and wages increases in Australia also exceeded the rate of sales
increase, which reflects the continuing labour cost pressures in that market.

Included within the overall operating expense increase were one-off costs of
approximately $2 million associated with the core system upgrade and brand
refresh. For the full year, operating costs as a % of sales are expected to
be higher than the result achieved in FY11, but not to the same level as
experienced in the first half-year.

"Active management of the level of operating costs will be a key focus in the
second half, and the investment made in systems and infrastructure will gain
further efficiency improvement in the future" said Mr Halkett.

EBITDA margin for the first half year decreased from 18.3% to 11.6% and EBIT
margin decreased from 15.7% to 8.7%.

OTHER FINANCIAL INFORMATION

Half year ending 31 January 2012:
NZ $m       1H FY12 1H FY11
Capital Expenditure     10.3  4.1
Operating Cashflow   (17.9) (8.8)
Inventories      76.8 55.5
Net Debt   85.6 77.5
Net debt : Net Debt + Equity 25.1% 24.8%

The increase in capital expenditure year on year has primarily been in store
relocations and refurbishments. Stores that were relocated or refurbished
during the period were:

o Australia: Newcastle (expansion), Hobart (expansion), Chatswood and
Camberwell (relocated)
o New Zealand: Wellington (relocated)

Total inventories increased by 38.4%, or NZ$21.3 million and by 21.4% on a $
per store basis. This was mainly as a result of the planned investment in
product range growth, slightly fewer new stores being open than anticipated
and higher levels of goods in transit. Total net debt at 31 January increased
by 10.5% on the previous year as a result of funding required for the
investment in inventory and the capital expenditure programme. The ratio of
net debt to net debt plus equity has remained similar at approximately 25%.

INTERIM DIVIDEND

Kathmandu confirms that an interim dividend of NZ 3 cents will be paid. The
dividend will be fully imputed for New Zealand shareholders and fully franked
for Australian shareholders.

FULL YEAR RESULTS OUTLOOK

Kathmandu will continue to invest in our store network through opening new
stores and relocating or refurbishing existing stores. The investment made in
inventory in conjunction with maintaining an aggressive marketing programme
will assist in maximising sales opportunities through our remaining key
promotional periods.

There remain key risks to achieving an improvement in second half year
performance, specifically:

o The two major promotional events in the second half of the year, which are
both impacted by consumer sentiment and the risk of unseasonal weather. The
latter risk is especially relevant to the crucial winter sale event at the
end of the financial year;
o The general economic environment which remains volatile and is highlighted
by low levels of consumer confidence.

Kathmandu's annual trading pattern means the overall result for the year
depends primarily upon the second half year performance and in particular the
Winter sale. Peter Halkett stated "Sales improvement in the period
post-Christmas has continued since the end of January, but two of our three
largest promotional events of the year are still to come which impact the
possible range for the full year result."

In concluding his assessment of the prospects for 2012 Peter Halkett said
"Despite the reduced first half profit we remain confident in the Kathmandu
business model and key growth strategies. Given the difficult current market
conditions, we do not believe it is possible to provide specific guidance. We
are actively managing our operating costs and are well prepared for our
Easter and Winter sale events."

For further information please contact:

Peter Halkett, Chief Executive Officer or Mark Todd Chief Financial Officer

+64 3 3736110

Media Enquiries to Helen McCombie, Citadel PR +61 2 9290 3033
End CA:00220967 For:KMD    Type:HALFYR     Time:2012-03-21 09:29:08