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Why Kathmandu shares could charge higher today

The Kathmandu Holdings Ltd (ASX: KMD) share price will be on watch this morning following the release of the adventure retailer’s full year results.

Over in New Zealand the retailer’s shares are up 6% in early trade.

How did Kathmandu perform in FY 2019?

For the 12 months ended July 28, Kathmandu delivered a 9.7% increase in sales to NZ$545.6 million. This was driven by same store sale growth of 0.6% and a 30% lift in the sales of its recently acquired Oboz business to US$44.6 million.

Online sales also contributed, growing 9.2% to NZ$48.4 million during the 12 months. This means its online business now accounts for 10.1% of direct to consumer sales.

Earnings before interest and tax (EBIT) came in 12.7% higher than in FY 2018 at NZ$84.3 million and NPAT grew 13.6% to NZ$57.6 million. These were both ahead of the guidance given to the market in August.

Kathmandu’s CEO, Xavier Simonet, appeared to be very pleased with the company’s performance in FY 2019.

He said: “Over the past 12 months the team delivered another record sales and profit result. The key drivers of this growth were a positive contribution from the Australian business, and rapid sales and profit growth from Oboz.”

“We were particularly pleased to grow sales in the second half of FY19, even though we were cycling strong Australian sales growth in our key winter period last year. At the same time as delivering sales growth, we maintained our focus on cost control, and benefited from wholesale operating cost efficiencies that saw us grow earnings faster than revenue. The diversification of our sales channels, brands, products, and markets, underpinned this result,” added Mr Simonet.

Outlook.

The company has started the new financial year strongly and recorded sales growth of 6.1% during the first seven weeks of FY 2020. This has been driven by solid same store sales growth across both Australia and New Zealand. Though, the latter appears to have been driven by discounting and has resulted in lower gross margins.

Looking ahead, Mr Simonet believes the company is well-positioned for growth.

He said: “Oboz has accelerated our transformation from a leading Australasian retailer to a global brand-led multi-channel business, and has enabled us to diversify our channels, brands, products, and markets.”

“Our entire team is proud to have delivered four years of innovative products, sustained sales and profit growth, strong operating cash flows, and significant value for our shareholders. In Kathmandu and Oboz, we have two distinctive brands, with strong fundamentals and significant international growth potential, delivering great quality products to our loyal customers,” he concluded.

Should you invest?

Overall, I thought this was a solid result from Kathmandu. So, with its shares trading at just 12x earnings and its outlook appearing to be positive, I think it could be a retail share to consider buying along with Accent Group Ltd (ASX: AX1) 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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