At the start of a year, many of us pledge to make massive improvements to our lives—spending less on unnecessary things, cooking more, working harder and such. Typically, around halfway, we call it quits and get on with our lives as they were. Then comes the guilt, the resentment, and the new year with new resolutions.
For Aussies, the economy has made it somewhat simpler (sadly, though) to keep up with the goal of spending less. High inflation, high interest rates and increased taxes have resulted in people having less money to spend on discretionary items, a trend characteristic of last year.
What’s more, this trend has bled into 2024. In January 2024, consumer spending fell by 10.2% compared to December 2023.
In H1 FY24 (ending January 2024), the retailer KMD Brands (ASX: KMD), the brand behind Kathmandu, Rip Curl, and Oboz, saw group sales of about $440.6 million, marking a 14.5% decline on the PCP. This is a result of ongoing weakness in consumer sentiment.
Operating costs have decreased by $15.03 million compared to last year, despite ongoing inflationary pressures. All brands are proactively managing costs in a challenging consumer environment. Group inventory as of January 31, 2024, is $4.7 million lower than the previous year, and net working capital is $16.9 million lower, despite lower sales. The expected range for underlying 1H FY24 EBITDA is between $13.15 million to $15.03 million.
Group CEO & Managing Director, Michael Daly, said, “It has been a challenging start to the year, as consumer sentiment continued to weaken. Rip Curl and Oboz are cycling record sales last financial year, and while revenues from the direct-to-consumer channel for these brands are showing single-digit declines (-4.4%), the wholesale channel has been more challenging (-16.8%) as wholesale accounts reduce inventory holdings. We expect this inventory reduction cycle to end this financial year giving us a more positive FY25 outlook in the wholesale channel.”
He added, “Kathmandu has experienced softer trading results since June 2023. A combination of weaker consumer sentiment, the warmest winter on record in Australia and the brand’s reliance on winter weight product has resulted in a disappointing first half.”
Daly affirmed that some optimism might be in order soon as it plans on launching new products, programs, visual merchandising and more personalisation, entering the second half and FY25. The Company recently released “Out There Rewards” and an expanded third-party brand strategy. Still, its immediate priority is improvement in Kathmandu’s sales performance as the Company approaches the key winter trading period.
The KMD Brands team is focused on delivering sales improvement, optimising gross margin, controlling operating costs and reducing working capital. In its December report, KMD asserted its working capital target of 18% of sales for the full year.
However, with continued household budget cuts and people looking for cheaper rainwear and winterwear brands, it is unclear how KMD plans on making Kathmandu a coveted wardrobe must-have again.
Alinda is a Business Reporter for The Sentiment
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