And as we have seen, David Jones wasn't alone in delivering bad news to investors yesterday.

NZ-based clothing and outdoor goods retailer Kathmandu has reported a slide in first-half profit due to lower margins, putting pressure on its shares.

And Australian luxury products chain, OrotonGroup actually produced a modest lift in earnings, but the shares fell any way

Kathmandu posted a net profit of $NZ6.0 million ($4.68 million) for the six months to January 31, compared with $NZ10.5 million last year.

The company said sales rose 15.4% to $NZ146.7 million, but these were achieved at lower margins while costs rose.

The shares fell 24c or more than 15% to $1.25, after hitting a day's low of $1.23 in Australia.

And, like David Jones, Kathmandu management sees problems ahead in the second half, with sluggish consumer sentiment and unseasonal weather standing in the way of a profit recovery.

Kathmandu issued a profit warning in December, (it wasn't alone, so did a string of other retailers, including David Jones).

But the ever optimistic investment community seems to have made the same mistake they made with David Jones: they reckoned on a rebound in early 2012, and pushed the shares up (David Jones shares were pushed up 15% from the start of 2912 to last Friday, March 16).

Katmandu shares staged a similar rebound.

But to no avail, as conditions went side ways, sales rose fitfully as the company cut prices to move stocks.

That's how the net profit for the half year fell 43% on a 15.4% rise in sales.

"Given the difficult current market conditions, we do not believe it is possible to provide specific guidance," Kathmandu's chief executive Peter Halkett said in yesterday's statement.

"Sales over the period were very strong, however this was achieved at lower gross margins and incurred higher costs."

"Following slow Christmas trading, more aggressive promotional and marketing activity was undertaken during January to maximise profits and rate of inventory sell-through."

"Additionally net profit was impacted by one off costs associated with our core system upgrade and our brand refresh project."

"In the first half year of FY12 same store sales growth was 8.0% (7.8% at comparable exchange rates).

"Online sales growth (up over 50% on the same period last year) was a small but important portion of this increase.

"The company opened 5 new stores and sales made to Summit Club members, the company's customer loyalty programme, rose at a faster rate than the overall rate of increase in sales.

"Our target and expectation is to have one million active Summit Club members across New Zealand and Australia within two years", The CEO said yesterday.

With the weak outlook for the rest of the year, the company expect the lower margins are expected to continue.

The retailer's Australian stores, which make up about 60% of total sales, lifted revenue 18 per cent to $67.3 million.

But earnings before interest, tax, depreciation and, amortisation fell 42% to just $6.1 million, dragging down the group performance with it.

Fashion retailer OrotonGroup has defied the retail sector's gloom and lifted its first half profit by 4%.

But that wasn't good enough for investors who, after the David Jones and Kathmandu announcements, weren't in the mood to support the shares of some retailers yesterday.

So down went OrotonGroup shares, off just over 3% or 32c at $8.70, a more modest reaction to the savaging seen at DJs and Kathmandu.

Investors ignored the unchanged interim dividend of 22c a share, which in the current climate is something of a vote of confidence in the outlook for the rest of 2012, even if directors say they are "cautious".

OrotonGroup, which makes and retailers luxury handbags and accessories said net profit for the first half (to January 28) was $16.1 million, up from $15.4 million in the same period in the previous year.

Total revenue rose 13.4% to $99.1 million from $87.4 million for the first half of 2010-11.

Like-for-like sales (the most accurate way of assessing sales performance) rose a solid 9%, with growth in its Oroton branded stores 5% higher and its Ralph Lauren chain up 6%.

Oroton Group had 92 stores at the end of January (60 Oroton stores and 32 Ralph Lauren), after opening eight new outlets and closing one in the six-month period.

Chief executive Sally Macdonald said the profit result was pleasing in a challenging retail environment.

"We believe the retail market in Australia is restructuring rather than in a cyclical downturn," she said in a statement.

Oroton will therefore continue to focus on its priorities - growing its Asian business and reducing costs in Australia, she said.

"Our outlook for the remainder of (fiscal year 2012) is cautious," Ms Macdonald said.

"We are focused on long term brand development and investment in our Asian expansion strategy.

"Acquisitions remain a possibility when they meet strict financial hurdles."

Even though the company turned in a solid result, there was evidence of pressure on margins in the half year.

The company's so-called EBIT (earnings before interest and tax) to sales margin (the best indicator of profit margins) eased to 24.4% from 25.9%.

Copyright Australasian Investment Review.
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