Why Kathmandu Holdings Ltd shares popped today

Is the bad news yet to come?

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Adventure apparel retailer Kathmandu Holdings Ltd (ASX: KMD) saw its shares climb more than 2% today to $3.22 in late afternoon trading.

The news may be surprising for some investors, given recent profit downgrades from more than a few retailers, including Pacific Brands Limited (ASX: PBG) and Super Retail Group Ltd (ASX: SUL). Consumer confidence has been crashing in recent times, mainly attributed to the potential impact of new Federal Government policies. The Coalition has mooted several new initiatives which could see consumers faced with less money in their pockets each week.

That hurts retailers, as households decide to conserve their free cash, rather than spend it.

Still, Kathmandu shares are rising, perhaps because the company has not downgraded its forecasts for this financial year yet (although they may still do so – more on that below), and also because much of the bad news may already be priced in. Kathmandu’s shares are under water 11.5% over the past month, including today’s rise.

The company is also heavily dependent on sales of winter clothing, and the unexpected warm weather could have put a damper on the company’s sales. With a July year end, Kathmandu may not be in a position to determine the impact as on their full year results as yet, or could be hoping for better sales results in the next six weeks to offset any declines in the past few months.

Balancing those thoughts, Kathmandu could have some bad news in store for shareholders within the next few months, and I’ll be sitting on the sidelines for now. For a better bet, you may want to continue reading…

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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