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Kathmandu Holdings Ltd (ASX:KMD) shares surge 9% higher on bumper profit result

Source: Company presentation

In morning trade the Kathmandu Holdings Ltd (ASX: KMD) share price has climbed higher following the release of the outdoor retailer’s full year results.

At the time of writing Kathmandu’s shares are up 9% to $3.13.

Here’s a summary of how the company performed in FY 2018 compared to a year earlier:

  • Sales increased by 11.7% to NZ$497.4 million.
  • Same store sales growth of 4.4%.
  • EBITDA increased 26.8% to NZ$89.8 million.
  • Net profit after tax jumped 32.9% to NZ$50.5 million.
  • Diluted earnings per share of 23.7 NZ cents. (21.8 Australian cents)
  • Final dividend of 11 NZ cents per share, bringing full year dividend to 15 NZ cents per share. (13.8 Australian cents)

I think there was a lot to like from this result and I can’t say I’m surprised to see its shares push higher this morning.

The highlight for me was its strong performance in Australia, which is the company’s largest market. Sales grew 9.6% in Australia during FY 2018 thanks to an impressive second half which saw same store sales growth of 11.6%. For the full year Australian same store sales grew 7.5%.

This offset a soft performance from its New Zealand stores which suffered as a result of a weak first half caused by lower levels of clearance stock. However, a stronger second half and gross margin improvement saw full year New Zealand gross profit rise 2% on the prior year.

The company’s online sales continued their strong growth during the year. Online sales grew to NZ$46.75 million, which means that they now comprise 9.4% of total sales. I suspect the growing popularity of the Afterpay Touch Group Ltd (ASX: APT) platform may have given sales a lift.

Pleasingly, the company’s bottom line grew at an even quicker rate thanks to a decrease in operating expenses. They fell 0.7% year-on-year as a percentage of sales despite including NZ$2 million in transaction costs for the Obōz acquisition and a further NZ$2 million for employee bonuses.

This was likely to have been driven from efficiencies which were achieved in distribution labour following last year’s automation investment in Australia, targeted promotional spend, and improved retail labour productivity.

This ultimately led to the company generating record operating cash flow of NZ$75.6 million this year.

Outlook.

No formal guidance was given by management, but CEO Xavier Simonet spoke positively about the company’s long-term prospects. He stated that: “It’s an exciting time for the business as we welcome Obōz to the Group and accelerate our international growth. In Kathmandu and Obōz, we have two great brands with significant growth potential in North America and Europe.”

Should you invest?

Following today’s push higher Kathmandu’s shares are now changing hands at 14x full year earnings and offer a trailing fully franked 4.4% yield.

I think this is great value for its shares and would class it as a buy along with fellow retailers Adairs Ltd (ASX: ADH) and Noni B Limited (ASX: NBL).

Finally, this buy-rated retailer and its growing dividend could also be a top option right now.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 Scott Phillips.

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