Kathmandu parent KMD Brands has reported a lift in its overall gross margin for the first quarter of FY25 compared to the same time last year, as revenue across its three key brands continue to fall.
The group - which also manages Rip Curl and Oboz Footwear - did not disclose the actual gross margin percentage, but it will be above 58.8 per cent recorded for FY24.
This comes as the outdoor lifestyle business recorded a 5.8 per cent fall in total revenue for the first quarter of the new year, down from 5 per cent recorded in full-year FY24, driven by increased pressure in Kathmandu’s New Zealand market alongside wholesale challenges for both Rip Curl and Oboz Footwear.
Kathmandu sales were the least affected, dropping just 2.7 per cent in Q1, with ongoing improvements in Australia where sales were up 4.3 per cent in the recent quarter, with a 15.4 per cent fall in New Zealand. These are both slight improvements on the first eight weeks of the new fiscal year, where NZ sales were down 23.2 per cent, and Australia sales were up by just 2.1 per cent.
KMD added that while Kathmandu total sales for Q1 FY25 were down 2.7 per cent below last year, its gross profit dollars were up by 3.6 per cent above last year.
Rip Curl sales fell 6.7 per cent for the first quarter, with its direct-to-consumer sales leading the charge with just a 3.4 per cent fall, while its wholesale channel plummeted by 11.2 per cent.
Forward orders indicate improving wholesale trends in the second half for Rip Curl, according to KMD.
As for Oboz Footwear, KMD’s smallest subsidiary, sales were down 8.6 per cent, driven by an 8.5 per cent fall in wholesale sales. The group added that sell-in for the second half is not yet complete.
Group CEO Michael Daly said the group’s first half results are dependent on the upcoming Black Friday and Christmas trading periods, adding that the team remains cautious on consumer sentiment, given the challenging global macroeconomic environment.
“We are encouraged that Kathmandu has continued to show an improving sales trend through the first quarter of the new financial year,” Daly said. “Refreshed authentic outdoor brand advertising has outperformed previous campaigns in Kathmandu’s largest market Australia. Brand awareness has improved, and we expect the new campaign will have a positive impact on building key long-term brand associations.”
“We are also encouraged that the Rip Curl direct-to-consumer results are outperforming the wholesale channel. We remain optimistic that wholesale results will start to improve as the wholesale customer inventory reduction cycle ends.”
Daly said the strategy ahead is to return to sales growth, improve profitability, and reduce inventory.
“No mean feat”
Speaking at KMD’s annual shareholder meeting, chairman David Kirk told shareholders that the group’s operating costs were significantly lower than last year, driven by consolidation of activities and roles, as well as tight cost controls. Strong stock management across the group also delivered a reduction in inventory.
“Maintaining gross margins and reducing inventory in the face of significant sales reductions is no mean feat and we thank management for the hard work undertaken to achieve this,” Kirk said.
In FY24, the group’s underlying operating expenses decreased by $19.6 million compared for FY23 despite ongoing inflation pressure in multiple markets and incoming benefits from a restructure implemented in late 2023.
Despite the drop, underlying expenses as a percentage of sales grew by around 4 per cent to 53.8 per cent.
Statutory operating expenses grew in the same timeframe, by $17.3 million to $469.2 million, or 47.9 per cent of total sales.
Oboz goodwill was also impaired by $40.3 million, driven by a conservative view of near-term US wholesale market conditions according to KMD.
As a result of these headwinds, the board decided not to declare a final dividend for FY24, aligned with the drop in earnings. As earning rise, dividends are expected to be restored.
Kirk also acknowledged the drop in KMD’s share price, which dropped from a recent peak of $0.54 cents to a low of $0.37 cents. As of writing, the share price is at $0.39 cents.
“As I stated in our FY24 Annual Integrated Report, we believe the current share price materially undervalues our iconic brands,” Kirk said. “We are all committed to improving the company’s financial performance, which will result in the restoration of shareholder value.
“The Group Executive remain focused on the basics: growing sales and gross margin, controlling operating expenses, creating great products, communicating our brand values effectively, and simplifying the business for greater efficiency.”