Adventure gear retailer Kathmandu has seen first-quarter earnings rise despite sales dropping in New Zealand.

Kathmandu Holdings says its first-quarter earnings were up despite sales dipping as it widened margins by selling less sale stock.

In the 16 weeks to November 19, group sales rose 0.6 per cent at constant exchange rates but dropped 1.6 per cent on a same-store basis, the Christchurch-based company said.

In Australia, its largest market, same-store sales grew 2.9 per cent in the quarter while they dropped 10 per cent in New Zealand.

Gross margin expanded 240 basis points, or 2.4 percentage points, with the level of clearance stock about 40 per cent lower than a year earlier, it said.

The outdoor equipment retailer is set to hold its annual meeting in Melbourne on Friday.

“We started the financial year with significantly lower levels of clearance stock than the same time last year,” commented Kathmandu’s chief executive officer Xavier Simonet.

“During the first quarter we sold more current season product than last year, but less clearance stock. This meant improved gross margin, and with total sales broadly in line with last year, we ended our first quarter with an improved earnings result.”

“We have maintained our strong working capital position, and we expect first half profit to be above last year. As always our first half-year result is highly dependent on the more significant Christmas trading period.”

In the last financial year, Kathmandu Holdings posted first-half profit of $10m, up 6.4 per cent and just beating earnings guidance.

Recently, the company announced it had lifted annual profit 14 per cent to $38m as sales grew in New Zealand and Australia, while it cut its debt levels to record lows.