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Why the Kathmandu Holdings Ltd share price is tumbling today

The shares of outdoor and adventure retailer Kathmandu Holdings Ltd (ASX: KMD) have taken a tumble this morning after it provided the market with a trading update for the first 15 weeks of FY 2017.

According to the release sales have fallen 0.6% on the prior corresponding period due to currency headwinds, clearance sales, and UK store closures.

The key metric I look for when judging a retailer’s performance is its same store sales growth. Whilst Kathmandu reported an increase of 1.4% this was a big drop on the prior corresponding period which saw a 4.8% increase.

Even more worrying in my opinion is that it is also lower than FY 2016’s average same-store sales growth of 1.6%.

Slowing sales growth is not something that investors want to see. As a result I’m not surprised to see its shares lower today. At the time of writing they are down by around 4% to $1.70.

For the first half of FY 2017 management believes profit will be in line with last year’s result. However, this is dependent on the Christmas and New Year promotion season. If the company has a less than successful holiday period, then profit is likely to be down year on year.

At just 11x earnings Kathmandu’s shares do appear cheap on paper. But just like fellow struggling retailer Myer Holdings Ltd (ASX: MYR), the lack of any sign of consistent earnings growth doesn’t make it investable in my opinion.

I would much rather invest in Premier Investments Limited (ASX: PMV) or Bapcor Ltd (ASX: BAP) if I wanted to gain exposure to the retail industry.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bapcor. 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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