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Kathmandu Holdings share price hammered on weak Christmas sales update

The Kathmandu Holdings Ltd (ASX: KMD) share price has been one of the worst performers on the market this morning following the release of a trading update.

In early trade the outdoor retailer’s shares are down 12% to $2.31.

Why is the Kathmandu Holdings share price plunging lower?

As you might have guessed from the share price reaction, today’s trading update was not a good one.

At its annual general meeting on November 23 management provided an update on trading year to date which revealed total sales growth of 8.4% on a constant currency basis excluding the acquired Obōz business.

A key driver of this growth was strong same store sales which were up 6.3% on the prior corresponding period.

In light of this positive start to the year, management advised that it expected first half profit to be “strongly above last year.” This was, however, dependent on the success of its summer sale.

Unfortunately, the summer sale hasn’t been anywhere near as successful as management hoped.

As a result of this, group same store sales for the 22 weeks to December are now down 1% on the prior corresponding period. One small positive is that the company has achieved an increase in its gross margin of 60 basis points.

Combined with its Obōz business, the company now anticipates total half year group profits to be up 4% to 8% on the first half of FY 2018.

Kathmandu’s chief executive officer, Xavier Simonet, appeared to be very disappointed with the company’s performance.

He said: “Following strong same store sales growth in Q1, we are disappointed in trading results in Australia and New Zealand over the Christmas and Boxing Day period. Despite sales being below expectation it is pleasing to see the improvement in retail gross margin and continuing strong growth from the recently acquired Obōz business.”

A number of retail shares including Baby Bunting Group Ltd (ASX: BBN) and Super Retail Group Ltd (ASX: SUL) have also dropped lower today following this update. Investors may be concerned that the retail sector didn’t have as strong a holiday period as expected.

I think it may be prudent to wait for more trading updates to come in before picking up any retail shares.

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. 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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