Kathmandu Holdings Ltd keeps climbing

The retailer has outperformed the ASX 200 for a long time now, will it continue?

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Kathmandu Holdings Ltd (ASX: KMD) shareholders were enjoying the view today, as shares climbed more than 7% on the back of third quarter sales growth driven by new store openings.

The Kiwi retailer reported sales of NZ$93 million for the 13 weeks to 27 April, up 12.9% on the prior period at constant exchange rates. The stronger New Zealand dollar lowered the margins on an actual exchange rate basis, but the numbers all point to a positive financial-year 2014.The upcoming June / July winter promotional events are a key variable for a business that enjoys the cold and strong sales then will cement the market’s confidence.

New store openings and refurbishments are being progressed at a fair pace, with the group spending more than NZ$15 million per year on development projects. Many of the new store openings are reported to be in regional areas with lower sales volumes, but with cheaper rents and lower overheads to compensate.

The outlook remains decent, leveraged as it is to a growth in travel and repeat custom from its one million plus signed-up members worldwide. Best-in-class products seem to have kept it ahead of Super Retail Group Ltd (ASX: SUL), as owner of the BCF, Boating, Camping, Fishing stores.

Online sales remain a big opportunity, demonstrated by a 49% year-on-year growth on a constant currency basis, and the group has now launched its international shipping drive.

With no store costs and no staff costs shipping goods bought online to overseas buyers is an extremely profitable operation. If management is able to develop the brand and online presence globally, there’s a massive, bottom-line bulging market waiting to be won. In North America, that market is partly covered by VF Corp (NYSE: VFC), as owner of The North Face and Timberland, two businesses that currently generate around 12 times Kathmandu’s annual revenues.

Foolish takeaway

Kathmandu should offer some steady if unspectacular growth on the back of its strength in Australasian markets. Digital sales are what could take it to the next level, although it faces a big climb to get there. It looks a hold for now, but any pullback could be a buying opportunity.

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Motley Fool contributor owns shares in Kathmandu, you can provide feedback on twitter @tommyr345

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