KMD Brands, who manages Kathmandu and Rip Curl surfwear, claim that consumer buying sentiment has become lukewarm, leading retailers to cut prices, reduce stock and launch promotions to entice cash-strapped households to buy.
Michael Daly, CEO for KMD Brands Limited, says more aggressive discounting by retailers is expected after their brand has seen overall sales dip by 6.4% in August as homes started to slash spending and warm weather decreased the need for their signature puffer jackets.
“In those times, some consumers will look for deals,” he said.
KMD recently announced a 0.6% falloff in net profit after tax to $NZ36.6 million ($33.7 million) for the 12 months to July 31, but sales did increase 12.6% to a record $NZ1.1 billion, with the business keeping the final dividend stable at NZ3¢ per share.
According to Daly, signs point to the weakening of the economy, which is now made more apparent with the changing consumer behavior and a retail market where most in the business have focused on price reductions.
“We’re definitely seeing a market that is quite aggressive on price,” he said.
“There’s general softness in consumer sentiment across the board now.”
On Wednesday, KMD Brands’ shares slid by 2% to 75.5¢ in early trading on the ASX, but the stock was at $1.06 in May.
Sales were up, however, to 8.3% to $NZ582 million for the fiscal year despite earnings before tax and interest being down 9.2% to $NZ44 million.
Additionally, margins fell to 7.6% from 9%.
For Kathmandu, sales were up 10.6% to $NZ422 million for the year but a warmer winter in Australia saw sales reduce speed, but international sales for Kathmandu were $NZ2.6 million. Kathmandu’s EBIT was boosted by 85% to $NZ33.3 million.
To boost revenue and share, Daly said Kathmandu is forging ahead with expanding its bricks-and-mortar stores in Australasia, adding to the 158 already in the region, which they want to get to around 200.
Daly said that he had targeted to open five to 10 stores yearly but “we’ll be patient,” he said.
For now, Daly stressed it would be a slow evolution shifting from regular promotions, which will be made more difficult right now.
“That wasn’t something we were looking to do by a click of the fingers,” he said.
Daly said retailers are looking to decrease inventory levels due to the limp economic environment.
“No one wants to take a risk in this market,” Daly said.
