Is Kathmandu a Buy at the Current Share Price?

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Kathmandu Holdings Limited [ASX:KMD] design, manufacture and retail their range of outdoor clothing and equipment for the travel and adventure segment of the market. They have 110 stores in Australia, 46 in New Zealand, and four in the UK. They also have an online retailing platform for Australian, New Zealand and UK residents.

At the time of writing, KMD shares were down 0.32%, to $1.52.

Why did Kathmandu shares do this?

The Kathmandu share price reached $1.60 per share on 16 April. This is the first time the stocks have traded at this price point since early August 2015.

The KMD share price rise came on the back reasonable first-half results for the company. However, the selloffs over the past two days are likely as a result of profit taking.

Total sales for the first half of the year were NZ$196 million (AUD$176 million). Net profit came in at the top of the guidance range to NZ$9.4 million (AUD$8.4 million) — far better than last year’s net profit for the same period, which amounted to a loss of NZ$1.8 million (AUD$1.62 million).

Management at KMD estimates net profit for the full 2016 financial year could reach NZ$30.2 million (AUD$27.1 million). But be aware that 55% of the company’s sales come from the second half of the financial year, with the key periods being Easter and winter.

What now for Kathmandu Ltd?

Kathmandu shares are still a long way off their high. KMD shares peaked at $3.68 in May 2014. Poor financial results over the past couple of years have seen the stock slide as low as $1.11 (July 2015).

Since early March, however, when management hinted that the first-half financial results would be better than the corresponding period in 2015, Kathmandu has started to regain some ground.

And the interim results suggest the retailer’s business turnaround strategy is working. KMD has dropped the frequent sales — which were hurting the brand and deterring consumers from paying full price. In addition to this, they reduced the number of Kathmandu discount outlet centers, closed underperforming stores in the UK, and pulled the plug on expanding into Europe.

Rather than expanding their lineup of stores globally, chief executive Xavier Simonet is eyeing off a strategy used by Kathmandu’s competitors. Brands like The North Face, Columbia and Patagonia use a combination of department stores and large chain sports stores for consumers to access the brands around the world.

Simonet thinks this blended sales strategy would suit the Kathmandu brand. The idea is only being explored for now but, should the company follow through with it, it could potentially boost KMD’s share price in the short term.

Put Kathmandu shares on your watchlist, as the company’s fortunes could be about to change.

Shae Russell
The Daily Reckoning

Shae Russell

Shae Russell

Shae is editor of the Australian version of Jim Rickards’ acclaimed Strategic Intelligence newsletter. Jim is a best-selling author…a trusted friend of the CIA, the Federal Reserve and the world banking system. He also helped the US Department of Defense through its first-ever currency war games scenario. With Jim’s insights and analysis, Shae brings you investment tips and recommendations to help you create and preserve wealth through the coming monetary collapse.
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