Rip Curl Deal Not Enough Save Kathmandu From COVID Wipeout

By Glenn Dyer | More Articles by Glenn Dyer

No dividends for the 2019-20 financial year for shareholders in retailer, Kathmandu which on Wednesday confirmed it was skipping a final.

The decision has been long telegraphed by the company which has struggled with the impact of COVID-19 and associated lockdowns here, in New Zealand, Europe, the US, and Asia and weak sales in the aftermath.

The pandemic and lockdowns also meant the company got no real benefits from its expensive purchase of Rip Curl in 2019 though that did help boost revenues for the year to July 31.

Total revenue jumped 48.7% to $801.5 million thanks to the $350 million acquisition of Rip Curl which added $315 million to Kathmandu’s sales for the year.

But thanks to COVID-19 and the lockdowns, that strong sales boost did not flow through to earnings, with the company’s underlying profit falling 44.5% to $31.5 million. When various one-off items were added, net profit shrank to $8.9 million, down 85%, hence no final dividend.

Kathmandu revealed in Wednesday’s announcement that the pandemic and lockdowns had cost it an estimated $NZ135 million ($125 million) in lost sales due to widespread store closures and weaker consumer spending.

Like so many other retailers, the lockdowns forced it to fall back on its small online business which grew rapidly.

The company said on Wednesday online sales jumped 63% for the year to $NZ106.4 million, to be 15.7% of the business’ total direct to consumer sales.

CEO Xavier Simonet said the year had been a “transformational” one for the retailer due to the Rip Curl acquisition, but COVID-19 had thrown up a number of unexpected challenges.

“We took decisive action early to reduce costs, adjust the operating structure of the business, and raised $207 million of equity,” he said.

“These initiatives have resulted in a strong balance sheet and healthy inventory level, which position us well for the future.”

Mr. Simonet said he and the company are hopeful sales at the company’s brands would recover after the coronavirus lockdowns, though he noted sales were still down in key markets such as Bali, Melbourne, and Auckland.

Kathmandu did not specifically break out how much it received in JobKeeper wage subsidies but highlighted it received a total of $21.2 million in government grants, which includes the New Zealand wage subsidy.

The shares slumped 8.5% to $1.075 on the ASX after being down a couple of percent in early trading in a market that saw solid gains across the session.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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