Kathmandu, Rip Curl owner sees consumers pulling back spending

Surfers and campers are forgoing new wetsuits or puffer jackets with retailer KMD Brands’ losses more than doubled for the first half.

Shoppers are highly price sensitive currently when it comes to buying a new puffer jacket.

KMD Brands boss Michael Daly believes surfers and campers are forgoing a new wetsuit or puffer jacket in the same way many consumers are pulling back on takeaway meals as the cost-of-living crisis hurts his Rip Curl and Kathmandu stores.

This was having a bruising impact on the surfing, camping and footwear retailer as its losses more than doubled for the first half, it skipped an interim dividend and warned of depressed profit margins. Improving sales momentum towards Christmas was dealt a blow by ex-tropical cyclone Alfred hitting Queensland and NSW, especially for Rip Curl which resulted in 100 lost trading days across the store network.

Mr Daly, who leaves KMD this week, said he was encountering a shopper still sensitive to price and needing a push to purchase as cost-of-living pressures affect the category.

“I think as most other retailers have said it is still challenging conditions and the average Australian and Kiwi shopper is being sensitive to price and if it is a great product and they really need it they’re still willing to buy, but they definitely have had more challenges in terms of their spending capability over the last few months to a year than they have in years prior,” he said.

“And we are still seeing a very price sensitive shopper in the market and we expect that to continue for some time.”

Mr Daly unveiled KMD’s interim results that showed a 0.5 per cent gain in sales to $NZ470.9m ($428.6m) for the six months to January 31 as its losses blew out to $NZ20.7m from a loss of $NZ9.7m in the first half of 2024. No interim dividend was declared.

KMD’s half-year sales were about 3 per cent ahead of market expectations while earnings, although down almost 75 per cent to $NZ3.9m, were at the top end of guidance.

The outlook remains subdued due to the tougher trading environment and price-conscious shopper with KMD updating the market that it expected weaker margins for Kathmandu, with Rip Curl and Oboz to also face squeezed profitability in the face of sector-wide discounting and promotional activity.

Surfers are looking for value and deals when buying a new wetsuit, says Rip Curl owner. Picture: Jeremy Piper

Mr Daly said Kathmandu and Rip Curl were being pinched by these pressures on consumers as they increasingly saw picking up a new wetsuit, puffer jacket or trekking vest as a discretionary purchase that could be pushed back to help pay other more pressing household bills.

“Whether it be that expensive meal at a restaurant or can I get a quick fast food meal, or a puffer jacket, wetsuit, surfboard, the consumer certainly is challenged in terms of how much they can spend ...” he said. “Hopefully some interest rate cuts and some ongoing strengthening of consumer sentiment will see that change.”

This preference for value and “looking for deals” was being played out in his sales where the retailer’s outlet shops in discounter malls such as DFO were trading much better for Rip Curl and Kathmandu compared to full-price stores elsewhere.

KMD are expecting gross margin pressures to continue in the near term in a highly competitive market, which may disappoint the market which is looking for margin expansion of about 64 basis points in the second half.

At Rip Curl for the first half sales were up just 0.1 per cent to $NZ278.5m as earnings fell 22.9 per cent to $NZ16.1m. Direct-to-consumer sales increased 4.1 per cent, reflecting strong sales growth over the key Australasian summer and Christmas trading period. Also, stronger results were achieved in Europe and South America. Wholesale sales fell 7.9 per cent in a challenging global market.

At outdoor adventurewear retailer Kathmandu sales rose 3 per cent to $NZ156.8m as earnings slumped 22.3 per cent to $NZ22m. The performance was hit by increased promotional intensity in the category which constricted gross margin by 0.4 per cent.

KMD also owns hiking boots specialist Oboz, whose sales fell 6.3 per cent to $NZ35.6m with losses expanding to $NZ2.6m from $NZ500,000 for the previous corresponding period.

In a trading update KMD said sales for seven weeks to March 16 for Rip Curl were up 0.7 per cent, with Kathmandu up 5.2 per cent.

Mr Daly will be replaced as chief executive by Brent Scrimshaw, a director of KMD and a former executive with Nike.

Originally published as Kathmandu, Rip Curl owner sees consumers pulling back spending