Kathmandu’s share price soars over huge profit increase

The Kathmandu Holdings Ltd (ASX: KMD) share price has rocketed up more than 8% to $1.50 in early trading, thanks to the company announcing a huge turnaround in earnings and net profit for the six months to December 2015. By comparison the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO) is up just 0.9%.

Here’s a summary of the expected results…

  1. Earnings before interest, tax, depreciation and amortisation (EBITDA) NZ$21.0 to NZ$22.0 million (last year NZ$6.8m)
  2. Earnings before interest & tax (EBIT) NZ$14.5 to NZ$15.5 million (last year NZ$0.6m)
  3. Net profit after tax (NPAT) NZ$8.5 to NZ$9.5 million (last year a loss of NZ$1.8m)

The result is a massive improvement over the previous corresponding period – which was hit by falling gross margins and lower than expected Christmas sales and trading due to ineffective marketing campaigns, wrong product ranges and a weaker discretionary environment in Australia.

As a retailer of seasonal apparel products such as hiking boots, sleeping bags, winter and rough weather jackets, and thermal clothing, Kathmandu depends heavily upon the weather for successful and profitable sales and trading. The company expects that in the lead up to the Southern Hemisphere winter and its second half of the 2016 financial year (FY16) to make 55% of total sales and between 65% and 70% of earnings.

CEO Xavier Simonet says the company reconfirms earlier guidance of delivering a full year net profit of NZ$30.2 million – roughly 50% better than the NZ$20.4 million last financial year (FY15) – but still below the NZ$42.2 million the company made in FY14.

Foolish takeaway

It’s been a rough ride for shareholders over the past few years, with shares sinking to a five-year low of 96.5 cents in 2012, before climbing all the way to $3.85 in 2014 and then sinking back to $1.105 in June 2015. That’s the risk of investing in a retailer subject to the whims of the weather as well as consumers. At today’s share price, Kathmandu appears to be fairly priced, and there are better opportunities available elsewhere.

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

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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