No light at the end of Kathmandu Holdings Ltd cold dark tunnel

The problems facing adventure gear retailer Kathmandu Holdings Ltd (ASX: KMD) goes beyond the sluggish consumer spending environment and its outlook fails to inspire much confidence that the worse is over.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Adventure gear retailer Kathmandu Holdings Ltd (ASX: KMD) gave investors little reason to cheer as its latest profit results and outlook sounded eerily similar to fellow embattled retailer Myer Holdings Ltd (ASX: MYR).

While the weak result had been well flagged to the market, it still wasn't enough to save Kathmandu from a 10% crash this morning to $1.42 when management confirmed that its first half result had swung into the red.

The problem is that there still isn't any light at the end of the tunnel with Kathmandu reporting a weak start to the second half of its financial year.

Same store sales (sales from established stores opened for a year or more) are 2% weaker on a constant currency basis in the seven weeks to March 15 when compared to the same time last year, and the first week of its Easter sales event in Australia is being reported as "soft".

The Easter and winter sales period is critical to the retailer's full year performance, and there's a real worry that the weak first half will carry through to the current half.

While sales for the first six months to end January gained 7% to $NZ179.4 million ($174.3 million), Kathmandu's earnings before interest and tax (EBIT) tumbled 97% to just $NZ600,000.

Heavy discounting from lackluster Christmas trading explains the divergence between revenue and earnings with the group reporting an interim net loss of $NZ1.8 million compared with a net profit of $NZ11.4 million for the same period last year.

The margin squeeze is alarming as it is not only driven by the big discounts the company had to offer to bring customers through its doors.

Operating expenses increased 17.8% to $NZ99.5 million while management admitted that it got its product mix wrong.

It's not just fragile consumer confidence that is weighing on sales. Customer feedback indicated that the clothes and gear that were being sold at its stores did not appeal to customers.

The heavy discounting, margin squeeze and poor trading conditions is like an echo from department store owner Myer, which also turned in a disappointing result.

Kathmandu is fixing its product selection issues but I don't think we will see much relief on the cost front as the company is looking to roll out 11 new permanent stores in the second half compared with eight in the first half.

The company is also continuing to invest in expanding its UK and online operations.

International sales could be a bright spot for the group, but this won't be enough to pull Kathmandu out of the funk given that around 60% of group revenue.

Motley Fool contributor Brendon Lau doesn't own any shares listed in this article. You can follow him on Twitter at https://twitter.com/brenlau

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »