Kathmandu Holdings Limited has announced normalised net profit after tax (NPAT) of NZ$13.2 million for the six months ending January 31, 2019, an increase of NZ$0.9 million compared with the prior corresponding period.
Excluding NZ$1.1 million abnormal income relating to the GST treatment of reward vouchers, normalised earnings before interest and tax (EBIT) increased from NZ$18.0 million to NZ$19.8 million for the same period.
Kathmandu chief executive Xavier Simonet said despite lower than expected sales over Christmas, retail gross margins improved.
"Kathmandu is on a journey of transformation.
"While we focused on driving growth for our Kathmandu business in Australia and New Zealand, we are also step by step diversifying our channels, brands and markets, particularly through Oboz which was delivered strong growth.
"Following strong same store sales at the start of our financial year, Kathmandu experienced softer trading conditions in Australia and New Zealand over the Christmas and Boxing Day period.
"Despite sales being below expectation, it was pleasing to see an improvement in retail gross margin."
Total sales grew by 2.7% in Australia which is its largest market.
New Zealand sales were 1.9% below last year, partially offset by 0.5% improvement in gross margin.
Online sales comprise 9.5% of direct to consumer sales over the last 12 months.
Retail gross margin increased 0.8% points from 63.4% in 1H FY18 to 64.2% in 1H FY19.
The gross margin increase resulted from less promotional discounting, leading to higher average selling prices.
The Oboz business continued to grow strongly.
It is the fastest growing major hike footwear brand at North America's largest outdoor retailer REI and the fastest growing footwear brand in Kathmandu stores.
Pro forma sales growth for 1H FY2019 was 38.6%, leading to 77.1% EBIT growth.
The earn-out EBITDA target of USD $7.1 million to December 2018 was achieved.
Oboz is expected to be neutral to Group earnings per share (EPS) in FY2019, and EPS accretive in FY2020.
The overall North America contribution to first half FY2019 Group EBIT was $3.7 million after accounting for consolidation adjustments and Kathmandu wholesale North America initial costs.
Kathmandu operating expenses increased by 4.3% at constant exchange rates, and by $2.4 million at actual exchange rates.
Incremental operating expenses arising from Oboz and Kathmandu North America totaled $7.3 million.
Total Group inventory has increased from $111.9 million at the end of July 2018 to $130.1 million as at January 31, 2019.
The Kathmandu inventory balance includes $6 million to support Kathmandu International and early deliveries of core styles for Autumn and Winter.
Clearance stock is currently in line with last year.
NZ$7 million was invested in capital projects, primarily in improving its store network through relocations and refurbishments.
Operating cash flow was impacted by the increase in inventory and timing of supplier and tax payments.
The Oboz acquisition in April 2018, added c. $60 million to net debt.
An interim dividend of NZ$ 4.0 cents per share will be paid to shareholders on the register as at June 7, 2019.
The dividend will not be franked for Australian shareholders and will not be imputed for New Zealand shareholders.
The final dividend is expected to be fully franked and fully imputed.
"We have continued our journey of transforming Kathmandu from a leading Australasian retailer to a brand-led global multi-channel business," Simonet said.
"Diversification of channel, brand, product, geography and seasonality has progressed in the first half, particularly through the success of Oboz.
"We remain focused on achieving sales and profit growth in our core Australasian business to fund investment for future growth.
"Our full year result is still very dependent on the key promotions to come, in which we will be cycling a successful second half last year.
"We will continue to inspire our customers by creating original, sustainable, engineered, and adaptive products, and by engaging with our customers and providing a superior customer experience.
"Oboz continues to grow strongly and we are beginning to build Kathmandu brand equity through authentic outdoor wholesale channels.
"International growth remains a very important opportunity."