Another private equity retail success story bites the dust within a few months of being sold into the market.

Myer was the first private equity retailer to flop, now outdoor adventure wear retailer Kathmandu has joined it after a profit warning saw its shares plunge yesterday by 22% at one stage.

Myer was a victim of greedy pricing and silly investors paying top dollar (the issue price was $4.10 a share, which has never been achieved).

Myer's woes were compounded by the slowdown in retail spending during the year as the impact of last year's stimulus vanished and interest rates rose.

Unlike Myer, Kathmandu actually came on to the lists last November above its $1.70 issue price and traded at a small premium for a while.

Indeed, up to the close on business Tuesday, it had traded close to the issue price, finishing trading that day at $1.68.

There was obviously a lot of market support in Australia and New Zealand (it is a Christchurch-based company) for the stock.

Yesterday it ended down 14%, or 23.5c, at $1.445, after touching a low of $1.39 during trading on the ASX.

The reason: this warning from the company that pre-tax earnings will fall up to 7% below prospectus forecast for the 2009-10 financial year due to the challenging retail environment, deteriorating margins and a blow out in the company's advertising and marketing budget.

The retailer also warned that like for like sales for the just completed financial year were only up 1.3%.

Both downgrades hardly rank as hanging offences. The market accepted, for example, the flat results from Harvey Norman for the 2010 financial year, which included negative sales growth in the last quarter on both a topline and same store basis.

So the sharp falls seems to be an overreaction.

Perhaps it was the tone of the commentary in the statement about how challenging the retail environment in Australia, New Zealand and Britain had been in the June half, compared to the first half.

Kathmandu chief executive Peter Halkett said: ''Throughout the final four months of the financial year, in all 3 countries that Kathmandu trades in, the retail environment has been very challenging, and more difficult than we experienced in the first half of FY2010''.

The profit warning and sales update from Kathmandu comes as other retailers have also commented on the difficult trading conditions for the sector, especially those businesses involved in fashion or discretionary spending.

Kathmandu said sales for the year ending July 31, 2010 were $NZ245.5 million, up $NZ29.9 million, or 13.9%, on the previous year. Same store sales were up 1.3%.

Australian sales of $113.3 million were up 14.3%, New Zealand sales were up 10.6% and sales from its stores in Britain were £4.3 million, up 18.6%.

But the strong topline growth was driven by the 14 new stores opened in the year (with all the start up costs associated with them to press down on margins).

That was actually two more stores than the 12 forecast openings in the prospectus, which has added to costs and margin pressures.

But the company said earnings before interest and tax for 2009-10, excluding one-off costs associated with the float, were expected to be $NZ47 million to $NZ48 million which is roughly 5% to 7% below the prospectus pro-forma forecast. The result was 7%t to 9% up on the previous year's pro-forma EBIT result.

Kathmandu has blamed the missed prospectus target on a string of events including a downturn in sales in the second half due to choppy trading conditions, a shortfall in gross profit earned on sales due to thinner gross margins and an increased spend on advertising in response to market conditions.

The group's gross profit margin for financial 2010 was expected to be 63%, against 64.4% in the previous year and a prospectus forecast of 64%.