By Eli Greenblat
UPDATE Shares in outdoor adventure wear retailer Kathmandu collapsed by more than 17 per cent this morning, to sink well below its offer price of $1.70 when it listed last year, as investors fled from the retailer following a profit warning.
Kathmandu warned this morning that its pre-tax earnings will fall up to 7 per cent below prospectus forecast for the 2009-10 financial year due to the challenging retail environment, deteriorating margins and a blow out in the company’s advertising and marketing budget.
Kathmandu's share price performance, tracked since mid-March by Bloomberg. Today's plunge is clearly visible.
Shares in Kathmandu dived on the poor earnings news, hitting an intraday low of $1.39 before closing 22.5 cents weaker, or 13.4 per cent down, at $1.45.
The retailer, which was floated in November in a heavily spruiked sale by its private equity owners, Quadrant Private Equity and Goldman Sachs's private equity arm, also warned that like for like sales growth for the just completed financial year were flat at only 1.3 per cent.
The profit warning and sales update from Kathmandu comes as other retailers have also commented on the difficult trading conditions for the sector, especially those businesses involved in fashion or discretionary spending. Yesterday Portmans, owned by Premier Investments, said it had experienced a downturn in sales while the nation’s biggest retailer, Woolworths, along with whitegoods and furniture retailer Harvey Norman have also reported limp sales growth for the year.
In its furiously promoted float last year Kathmandu opened its first day trading at $1.775, a small premium of 4.4 per cent to the offer price of $1.70 per share, giving the retailer a market capitalisation at the time of just over $353 million.
The private equity backers made hundreds of millions of dollars from the Kathmandu float. Private equity players made billions of dollars from the float of Myer at around the same time, and its stock has also sunk below the offer price.
Kathmandu, which has 90 stores across Australia, New Zealand and Britain, is keen to accelerate its store roll out.
But in a trading update to the market this morning Kathmandu said sales for the year ending July 31 2010 were $NZ245.5 million, up $NZ29.9 million or 13.9 per cent on the previous year. Same store sales were up 1.3 per cent.
Australian sales of $113.3 million were up 14.3 per cent, New Zealand sales were up 10.6 per cent and sales from its stores in Britain were £4.3 million, up 18.6 per cent.
But the company said earnings before interest and tax for 2009-10, excluding one-off costs associated with the float, were expected to be $NZ47 million to $NZ48 million which is roughly 5 per cent to 7 per cent below the prospectus pro-forma forecast. The result was 7 per cent to 9 per cent up on the previous year’s pro-forma EBIT result.
Kathmandu has blamed the missed prospectus target on a string of events including a downturn in sales in the second half due to choppy trading conditions, a shortfall in gross profit earned on sales due to thinner gross margins and an increased spend on advertising in response to market conditions.
The group’s gross profit margin for financial 2010 was expected to be 63 per cent, against 64.4 per cent in the previous year and a prospectus forecast of 64 per cent.
Kathmandu chief executive Peter Halkett said: ‘‘Throughout the final four months of the financial year, in all 3 countries that Kathmandu trades in, the retail environment has been very challenging, and more difficult than we experienced in the first half of FY2010.’’
egreenblat@theage.com.au