Investors have welcomed today's business update from Kathmandu Holdings Ltd (ASX: KMD), sending the share price rising 0.7%.
In its update today, the retailer said it expects its group net profit after tax (NPAT) result for the six months ended 31 January 2017 to be $9.9 million, up a little over 5% from the $9.4 million it achieved in the prior corresponding period (figures in NZ dollars).
On a constant currency basis, Kathmandu's same-store-sales improved 3.4%. Much of that growth came from Australia, which is Kathmandu's largest market (representing almost 62% of total group sales), with 5% constant currency growth.
In addition, Kathmandu noted that it was able to grow its earnings via "rigorous cost control and working capital efficiency". That was despite the retailer experiencing gross margin pressures which were a result of foreign currency movements during the period.
Kathmandu will release a more in-depth review of its first-half results on 21 March 2017. Prior to then, investors will get a better sense of how the broader retail environment is tracking with earnings reports from JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Nick Scali Limited (ASX: NCK), as well as many other retailers, expected to be released this month.
Although most retailers are typically easy to understand, investors do need to be mindful about which businesses they choose to invest in. After all, there are typically low barriers to entry, increasing competition risk, while the highly-anticipated arrival of Amazon.com in Australia will also rustle a few feathers.
Indeed, conditions do appear to have improved for Kathmandu, and its share price has risen strongly over the past six months to reflect that. However, based on the risks mentioned above, and its higher share price, I think investors should avoid Kathmandu for now.
