Kathmandu, Rip Curl sales tank amid higher temperatures and lower budgets

The operator of retailer Kathmandu and surf brand Rip Curl has downgraded its profit guidance and its share price has sunk after warmer weather and the consumer practice of “trading down” had a damaging effect on sales.

Across August to November, group sales at KMD Brands nosedived 12.5 per cent, with underlying earnings coming in $16 million lower than this time last year.

Kathmandu, Rip Curl and Oboz sales have sunk amid reluctance among consumers to open their wallets.

In a trading update to the ASX, the company stated that “ongoing weakness in consumer sentiment” had affected the purchases of Kathmandu’s rainwear and insulation gear. Kathmandu’s total sales for the four-month period are down 21.6 per cent, though this is coming off a 71.7 per cent jump last year.

“Improvement in Kathmandu’s sales performance remains our priority,” said KMD Brands chief executive Michael Daly.

Black Friday sales delivered a solid boost for Rip Curl and KMD’s hiking shoe brand Oboz, he said, but retailers have been reducing the amount of stock they buy as consumers watch their budgets closely and wait for major sales to do their shopping.

Rip Curl’s sales are down 5.7 per cent while sales for Oboz have dropped 18.2 per cent.

The update has not impressed investors, who sent KMD’s share price down 8 per cent at the close of Wednesday’s session compared with yesterday’s closing price.

“We remain focused on optimising gross margin, controlling operating costs, and reducing working capital for all of our brands,” said Daly.

KMD Brands had a strong 2023 financial year, with sales jumping 12.6 per cent to $1 billion, although net profit dipped slightly by 0.6 per cent to $36.6 million.

Michael Daly, CEO of KMD Brands.Credit: David Rowland

But Australia’s weather has been warmer than expected, impacting sales at the company that is known for puffer jackets and camping and hiking gear.

“Seasonality is a big thing in fashion,” said consultant and Retail Doctor chief executive Brian Walker, who said brands such as Kathmandu were more at the mercy of the weather than other brands.

The outdoor gear retailer also faces fierce competition, with department stores discounting aggressively and many online brands vying for attention, Walker said.

“In a slightly contracted market like this, absolute traffic volumes may be consistent with previous periods; however, customers are trading down,” he said.

“Have they got the depth in range to accommodate a lower-ticket item?”

Retail analyst Craig Woolford said that KMD Brands’ lower trading figures were also due to its exposure to the New Zealand retail market, which he said had suffered more than Australia’s.

But he also pointed to the fact that KMD’s gross margins had improved, with Daly stating that operating costs were being actively managed and were a key focus of the business.

“They may have been more sophisticated around their promotions, but retailers generally have had steady, stable to improving gross margins, which does suggest that discounting levels are similar, if not less, than a year ago,” said Woolford.

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