Kathmandu eyes US for flagship stores

GROWTH ERA: Kathmandu is working on its international expansion plan.
GROWTH ERA: Kathmandu is working on its international expansion plan.

Outdoor clothing retailer Kathmandu is eyeing the North American adventure wear market as part of an international expansion plan that promises to drive a new era of growth once its Australian and New Zealand business starts to mature.

Kathmandu plans to replicate the strategy of global fast fashion retailers, using a small number of bricks and mortar stores to raise brand awareness and drive consumers to its online sites.

Kathmandu has four stores in the UK in high-profile locations and is now shipping polar fleeces, hiking boots and sleeping bags to consumers in more than 40 countries through the Kathmandu web store and marketplace sites such as Amazon, eBay and NEXT.

Chief executive Peter Halkett says that once the UK strategy is proven, Kathmandu plans to open flagship stores in the US and Canada to further boost its international presence.

"But that's still some time off - we want to get the UK model working right first," Halkett said after reporting a 10.7 per cent increase in first-half net profit to $11.4 million.

Online sales rose 49 per cent in the six months ending January and account for 4.7 per cent of total sales. Halkett believes they will exceed the company's 10 per cent target to become a major source of profit growth.

"In Australia and New Zealand [online sales] may be 10 per cent to 15 per cent and in the UK we might have 10 per cent of sales in stores and 90 per cent online through our own site or partner sites," Halkett said.

Meanwhile, the core business continues to deliver solid profit growth, underpinned by new stores, solid same-store sales growth and higher gross margins. The first-half result, which was in line with market forecasts, once again demonstrated the resilience of the outdoor market.

Group sales rose 1 per cent to $167.6m and same-store sales at actual exchange rates fell 3.5 per cent.

However, on a constant currency basis, group sales rose 10.5 per cent and same-store sales rose 5.4 per cent, similar to that in 2013. First half profits would have been $2.2m higher if not for the strength of the NZ dollar, which has risen 15 per cent, reducing the translated value of sales and earnings from Australia.

"If we were presenting these results in Australian dollars they would look even more impressive." Halkett expects profit growth again this year but declined to provide detailed guidance, given that Kathmandu earns 70 per cent of profits in the second half.

"As we have only just commenced our Easter sale, the second of our three largest promotional events each year, it is still too early to assess what the overall result for the full year may be," he said.

The NZ dollar's rise will reduce full year profits by at least 12 per cent.

Kathmandu plans to open 15 stores this year and has lifted its long-term target from 170 to 180 stores, up from 135, thanks to the success of a small-store format which enables it to open profitable stores in regional towns.

Moelis analyst Todd Guyot forecasts 10 to 15 per cent annual profit growth in the next few years and says Kathmandu's vertically integrated business model gives it an edge in a resilient market. Kathmandu will pay an unchanged interim dividend of NZ3¢ a share, fully franked for Australian shareholders.