Has Kathmandu peaked?

Adventure retailer rises more than 10% today

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Adventure retailer Kathmandu Limited (ASX: KMD) shares shot up more than 10% today, after the company confirmed it was on target for a strong full year result.

Sales for the 13 weeks to end of April were up 12.5% over the equivalent period in the previous year to NZ$89.7 million, with same store sales up 4.1%. While weather can play a big part in Kathmandu’s sales – the majority of its products aimed at cooler or cold weather – the company’s winter sale in June/July is its largest promotional event each year. Analysts expect Kathmandu to report a net profit of around NZ$41 million, on sales of just under NZ$390 million.

Kathmandu has opened 40 new stores over the past 18 months, and with plans for 170 stores in Australia and New Zealand, is at least three years ahead of schedule. The company has also gone through a rebranding process, both if its stores, including the online sites and its products. So far 112 stores have the new branding and less than 10 will have the old branding by the end of June 2013.

Its members club, Summit Club is on target to achieve one million members by the end of 2015, and has more than 800,000 currently. That’s an increase of over 25% from the same period last year. More than 50% of total sales are to the members, and the average spend per member has increased.

Additionally, the company has increased the number of produce lines from around 3,500 to 5,000, and added more in-house designers, with the establishment of an Australian team.

Kathmandu appears to having similar success as its main competitor Super Retail Group (ASX: SUL) with its BCF, Rays Outdoors, Super Cheap Auto and Rebel stores driving strong revenue and earnings growth.

In the past year, Kathmandu has seen its share price rise more than 55%, while Super Retail is up over 76%, compared to the S&P / ASX 200 Index’s (Index: ^AXJO) (ASX: XJO) gain of 19.5%.

Foolish takeaway

Trading on a forecast P/E ratio under 10, and paying a fully franked dividend yield of over 5%, Kathmandu appears cheap compared to its competitors. RCG Corporation (ASX: RCG), the owner of Athletes Foot stores is trading on a P/E ratio over 15, while Super Retail sports a P/E ratio over 20. On that basis, Kathmandu is definitely a worthy addition to investors’ watchlists.

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