Kathmandu warns first-half profit will fall as lockdowns hurt

Tuesday, 21 September 2021

Lockdowns are crimping sales of Kathmandu’s outdoor adventure and travel gear.

Kathmandu Holdings says Covid-19 lockdowns are shaving up to $10 million a month off its profits, and the impact is worse than last year with 42 per cent of its store network closed.

The retailer posted a higher profit for the past year but warned that lockdowns had dented sales and its first-half profit would fall this year.

Auckland’s five-weeks in level 4 lockdown has disrupted trading and hurt company profits, and businesses with operations in Australia are also being impacted by a prolonged Covid-19 outbreak there. Kathmandu said its same-store sales were significantly impacted by the lockdowns, with Rip Curl down 13 per cent and Kathmandu down 20 per cent in the first six weeks of the new financial year from August 1.

“It is actually worse than last year because Auckland only had a two-week period last year, and we have got Victoria and New South Wales where last time it was just basically Victoria, so the lockdown period for the first quarter is worse,” Kathmandu chief financial officer Chris Kinraid said on a conference call.

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Kinraid said the company lost between $8m to $10m of earnings before interest, tax, depreciation and amortisation in August due to the lockdowns, although the impact would be less severe in September and October.

Kathmandu acquired surf brand Rip Curl in 2019 and it’s performing better than expected.

Covid restrictions were also impacting the company’s supply chain as suppliers reduced factory capacity due to enforced closures, and freight congestion caused delivery delays and increased freight costs, the company said.

Shares in Kathmandu fell 2.1 per cent to $1.43 in midday trading on the NZX.

The retailer reported an increase in 2021 profit to $63.4m, from the previous year’s $8.9m which was impacted by one-time costs associated with its purchase of surf brand Rip Curl, and restructuring.

Kathmandu paid $368m for Rip Curl in October 2019, to diversify the group’s products, balancing Kathmandu’s winter and outdoor focus with Rip Curl’s summer and beach focus, as well as giving the group inroads into the North America and European markets where Kathmandu wants to expand.

The diversification has helped the company over the last year, as Rip Curl sales continued to grow while sales of Kathmandu’s outdoor adventure and travel gear were dented by closed borders and stores due to the Covid-19 pandemic.

The Kathmandu brand’s underlying pre-tax profit fell 49 per cent to $26.3m last year as sales fell 17 per cent to $354m.

Chief executive Michael Daly said “a big chunk” of the Kathmandu business had disappeared due to Covid-19 border closures.

“We built a large business around adventure travel and when that stops, it does have a very significant impact on our results,” he said.

In contrast, Rip Curl’s underlying pre-tax profit outperformed expectations, jumping to $56.9m in the 12-month period compared with $4.2m in the previous nine-month period following its acquisition. Sales soared 55 per cent to $490.4m, and were up 11 per cent on the prior comparable 12 months.

The company expects increased vaccination rates to ease international travel restrictions in the coming year, which it says will benefit the Kathmandu brand and emerging markets for Rip Curl.

It plans to launch the Kathmandu brand in mainland Europe and Canada this year and noted wholesale orders for Rip Curl and its North American outdoor footwear brand Oboz were significantly above pre-Covid levels.

CORRECTION: An earlier version of this story said the company had lost up to $10m of ebitda per week in August. (Updated September 22, 10am)