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Why the Kathmandu Holdings Ltd (ASX:KMD) share price raced 20% higher today

The Accent Group Ltd (ASX: AX1) share price isn’t the only one in the retail sector flying higher today.

Outperforming even Accent Group is the Kathmandu Holdings Ltd (ASX: KMD) share price which has surged 20% higher to $2.79 in early trade.

Why are Kathmandu’s shares rocketing higher?

The outdoor retailer is holding its annual general meeting in Auckland today and ahead of the meeting released a trading update.

According to the release, sales for the first 15 weeks of FY 2019 are up 8.4% on a constant currency basis excluding the recently acquired Oboz business.

This has been driven by an impressive increase in same store sales in both the Australian and New Zealand markets.

During the period same store sales were up 7.1% in Australia and 5.2% in New Zealand. Combined, this equates to same store sales growth of 6.3% for Kathmandu on a constant currency basis.

Kathmandu’s chief executive officer Xavier Simonet advised that the company has continued to experience strong demand for its core products, following a strong winter period.

He also provided an update on the first quarter performance of the US-based Oboz business that it acquired earlier this year for a base cash consideration of US$60 million, plus an earn-out of up to US$15 million.

Oboz achieved sales of NZ$15.7 million in the first quarter with a gross margin of 39.8%. It remains on track to achieve the US$7.1 million EBITDA earn-out target for the 2018 calendar year.

Looking ahead, Simonet appears optimistic that the company will deliver a solid first half result following this positive start.

He said: “We have achieved good sales growth leading into the key Christmas trading period, and we expect first half profit to be strongly above last year. However, as always our first half-year result is highly dependent on the success of our Summer Sale.”

Should you invest?

Despite its strong share price gain today, Kathmandu’s shares are still changing hands at just 12x trailing earnings.

I think that this is undemanding given its solid performance this year and positive outlook over the coming years. Especially given the good performance of the Oboz business.

Overall, I would class it as a buy with Accent Group and Super Retail Group Ltd (ASX: SUL).

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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 Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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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