Kathmandu will shut its British stores and abandon expansion plans in Europe to focus on fixing its struggling Australian business.
Newly-installed chief executive Xavier Simonet revealed the change in strategy alongside a halving of the outdoor goods retailer's full year profit on Tuesday.
Net profit for the 12 months to July 31 fell 51 per cent to $NZ20.4 million ($A18.48 million), a slightly better result than Kathmandu forecast a month ago.
Mr Simonet said the result highlighted the need to close its network of four unprofitable British stores, the first of which was opened 12 years ago.
He has also scrapped plans, announced a year ago, to open stores in Europe.
"However, that does not mean we won't continue to grow internationally," Mr Simonet told reporters.
"There is strong international potential for the company.
"I would drive international growth through a capital-light model and online to make sure we get an acceptable return on our investments rather than invest in huge fixed cost structures that haven't shown to work in the UK."
He said he will reveal more details of group's international expansion plans in coming months.
Kathmandu will stick to its long-term target of 180 stores across Australasia, with three new outlets slated for 2015/16 along with the relocation of flagship stores in Melbourne and Adelaide.
The retailer, which has been fighting an attempted takeover by New Zealand's Briscoe Group, said subdued Australian consumer sentiment had hit sales.
Aggressive discounting and a weaker Australian dollar have also hurt profit margins.
Same store sales growth fell 2.7 per cent in Australia and 1.1 per cent in New Zealand during the year.
IG Markets market strategist Evan Lucas said Kathmandu's decision to focus on its Australian and New Zealand business appears to have pleased investors.
Kathmandu shares overcame huge losses on the wider share market to rise three cents to $1.30.
"The share price could be rallying because Kathmandu is consolidating and will concentrate on what it does best, which is Australia and New Zealand," he said.
"Europe is a very hard market to crack and you only have to look at what happened to Billabong to see that."
KATHMANDU HAS A MOUNTAIN TO CLIMB
* Net profit down 51.6pct to $NZ20.4m
* Revenue up 4.2pct to $NZ409.4m
* Final fully franked dividend 5.0 NZ cents, down from 9.0 NZ cents
