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KMD Brands warns of consumer spending slowdown

Sports and outdoor goods retailer KMD Brands (ASX:KMD), known for its popular brands Kathmandu and Rip Curl, has issued a warning about a slowdown in consumer spending, aligning with similar concerns expressed by other ASX retailers.

The company cited households grappling with inflationary pressures and an unusually warm start to winter as factors contributing to the dampened trading results in the June quarter.

Following KMD’s confession, the company’s shares plummeted by 9.3 percent to 88¢ during early afternoon trading on Wednesday.

The decline in consumer sentiment due to increased cost-of-living pressures has presented significant challenges for KMD in the fourth quarter, according to the company’s statement to investors.

Reserve Bank governor Philip Lowe also addressed the issue of sluggish growth in household consumption, highlighting the deceleration in economic activity.

He further emphasised that this slowdown could potentially alleviate cost pressures on businesses and lead to increased discounting in the market.

Simon Mawhinney, chief investment officer at Allan Gray Australia, noted that KMD’s warning provided additional evidence of consumers curbing their spending habits.

Mawhinney attributed this trend to rising interest rates and the strained financial situation of consumers and households.

While some companies have maintained a positive outlook despite the broader slowdown, KMD’s predictions for sales in the current fiscal year indicate a significant deceleration.

The company expects its sales to reach approximately $NZ1.1 billion ($1 billion) by 31st July, reflecting a 12.3 percent increase compared to the previous corresponding period. However, this growth rate represents a considerable slowdown from the 27.7 percent sales growth reported for the nine months leading up to April.

Kathmandu, KMD’s flagship brand, has faced a slower start to its winter trading period, primarily due to a warmer-than-usual winter in Australia and overall softening consumer sentiment. The company’s sales patterns have also been disrupted, as the first half of the fiscal year and the second half are now expected to generate roughly the same level of sales. This contrasts with KMD’s previous statement in March, where the second half was considered the traditionally stronger period.

KMD’s CEO, Michael Daly, expressed the company’s commitment to delivering strong results for Kathmandu’s winter season and Rip Curl’s northern hemisphere summer sales while also focusing on cost moderation. Daly stated, “We remain focused on delivering our key Kathmandu winter and Rip Curl northern hemisphere summer results, while continuing to moderate our cost base.” The company clarified that this approach primarily referred to variable and discretionary spending, with no indication of job cuts or store closures.

To counter the impact of the slowdown, some retailers, including Kathmandu, have increased discounting efforts. Kathmandu is currently running a winter sale, offering price reductions of up to 45 percent.

Despite the challenging market conditions, KMD reassured investors that its gross margins remained resilient. The company expects gross margins to align with last year’s figures, which stood at 58.9 percent. KMD also provided earnings guidance, with underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) projected to range between $NZ105 million and $NZ110 million, compared to $NZ92 million in the previous year.

With over 300 stores worldwide and its products available in more than 8,500 locations, KMD aims to navigate the current economic challenges while maintaining its brand reputation and financial stability.