Kathmandu Holdings Ltd shares flat as earnings rocket

Shares in adventure apparel retailer Kathmandu Holdings Ltd (ASX: KMD) traded flat at $1.50 today after the company revealed an interim profit of NZ$9.4 million.

In the prior corresponding period (pcp) the business posted a net loss of NZ$1.8 million and the swing to profit will be welcome news for investors with the share price having collapsed in half over the past two years.

Same store sale growth was achieved in all markets, with the group opening four new stores in ANZ over the period.

Margins were also up due to improved selling prices and promotional activities, while online sales were up 23% on the pcp and made up around 6.6% of sales that totaled NZ$196 million.

The company declared a 3 cents per share interim dividend, which will be unfranked for Australian shareholders.

Foolish takeaway

The same-store sales growth suggests Kathmandu is back on track and management is closing the loss-making UK stores at a good rate. After six consecutive halves of negative EBITDA in the UK it’s evident the move there has largely been a failure.

However, Australia and New Zealand are much more natural consumer markets for a business like Kathmandu and it reconfirmed full year guidance for net profit after tax of NZ$30.2 million.

If achieved this would mean Kathmandu only trades on around 10x net profit given its market valuation around $300 million and some investors may consider the stock cheap.

However, it operates in a competitive retail environment with much riding on the crucial Easter and Winter campaigns that largely drive the group’s full year result. Investors then may be best off enjoying the view from the sidelines for now.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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