Kathmandu climbs to new sales peaks and shares follow

KATHMANDU'S share price received a welcome boost on Friday after the company announced stronger than expected sales for the financial year to date, but warned against reading too much into what is traditionally its quietest trading period.

By InvestSMART · 17 Nov 2012

By InvestSMART ·
17 Nov 2012

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The shares jumped as much as 8 per cent before closing 7.5? higher at $1.425 after Kathmandu told investors at its annual meeting that year-to-date sales were up 19.5 per cent.

Same-store sales - excluding stores opened during the year - grew by 14.3 per cent during the period, compared with 7.6 per cent in the same period last year.

Kathmandu chief executive, Peter Halkett, said the period traditionally provided only 16 per cent of its business, but added: "This is obviously a very positive sign for us."

A better gauge of Kathmandu's performance for the year will be provided by the Christmas trading period, as well as the second half, which has historically accounted for 58 per cent of sales and almost all of its earnings growth.

The company reaffirmed its commitment to new store rollouts with 15 targeted across Australia and New Zealand for the 2013 financial year.

"Not too many retailers will have this kind of rollout plan available to them. We will open nine more stores by Christmas, the equivalent last year was five. And it is not about growing stores but also upgrading current ones," Mr Halkett said.

He added that the market did not really understand how great an opportunity Australia remains for Kathmandu. At present spending in the Australian market on its products was only $10.34 per capita, compared to $31.31 in New Zealand.

Kathmandu chairman James Strong addressed investor concerns about a share price that has languished since it first listed three years ago.

"When the company was floated it was before the retail economic downturn, and the pricing was based on the growth in the earnings. After the float, we ran into the 'Myer effect' where retail stocks remain well below their floated price," Mr Strong said.

Economic conditions were likely to continue to inhibit discretionary spending, said Mr Halkett.

The company said it was committed to expanding in the UK market but not through stores with sales growth being driven by its online service.

"Removing seasonal effects, our outdoor category is on trend," Mr Halkett said.

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Frequently Asked Questions about this Article…

Why did Kathmandu's share price jump and should investors be excited?

Kathmandu's shares jumped after the company reported stronger-than-expected year-to-date sales (up 19.5%). Shares rose as much as 8% intraday and closed 7.5% higher at $1.425. Management cautioned investors not to read too much into this because the period is traditionally the quietest trading period, accounting for only 16% of its business.

How much did Kathmandu's same-store sales grow and what does that mean for investors?

Kathmandu reported same-store sales growth of 14.3% for the period, compared with 7.6% in the same period last year. For investors, stronger same-store sales indicate healthier underlying retail performance excluding new store openings.

How important is the Christmas trading period and the second half for Kathmandu's earnings?

Management said the Christmas trading period and the second half are a better gauge of the full-year result: the second half has historically accounted for 58% of sales and almost all of Kathmandu's earnings growth, so investors should watch those periods closely.

What is Kathmandu's store rollout plan and how could it affect growth?

Kathmandu reaffirmed a commitment to open 15 targeted new stores across Australia and New Zealand in the 2013 financial year. The company plans to open nine more stores by Christmas (vs five last year) and is also upgrading current stores, which could support sales growth if executed well.

How does Kathmandu view the Australian market compared with New Zealand?

Management said Australia remains an attractive opportunity because current per capita spending on Kathmandu products is much lower in Australia ($10.34) than in New Zealand ($31.31), suggesting room for growth in the Australian market.

What is Kathmandu's strategy for the UK market and online sales?

Kathmandu said it is committed to expanding in the UK market but not through physical stores; instead, sales growth in the UK will be driven by its online service.

Why have Kathmandu shares lagged since the company listed?

Chairman James Strong said the company was floated before the retail downturn and pricing was based on expected earnings growth. After the float, Kathmandu ran into what he called the 'Myer effect,' where retail stocks have remained well below their floated price, contributing to the share-price underperformance.

What risks did management highlight that everyday investors should watch?

Management warned that the reported period is traditionally quiet (only 16% of business) and that broader economic conditions are likely to continue to inhibit discretionary spending. Investors should therefore focus on Christmas trading and the second half for a clearer picture; management also noted the outdoor category is on trend after removing seasonal effects.