Kathmandu Holdings Ltd (ASX: KMD) has this morning released its first half FY20 results and at the same time announced a $207 million equity raising.
Kathmandu described the equity raising as 'pre-emptive', designed to ensure the company remains strongly capitalised during current market uncertainties.
Capital raising
The capital raising will take place by way of a $30 million placement to institutional investors plus a $177 million entitlement offer. Shares are being offered at 50 cents a share under the raising, a steep discount to the 98 cents shares last traded at. Proceeds of the raising will be used to deleverage the balance sheet and provide liquidity and funding in the medium term in the event the coronavirus pandemic is prolonged.
Results
Kathmandu reported same store sales growth of 1.5% for Kathmandu stores during the first half, while Rip Curl saw same store sales growth of 2.7%. The group's total sales increased 58.8% to $363.7 million incorporating the contribution from Rip Curl which was acquired at the end of October.
The outdoor segment (Kathmandu and Oboz) saw online sales grow 33.1%, with digital sales now comprising 11.1% of sales, up from 9.5% in the previous 12 months. Currently, all stores across Australia and New Zealand are closed due to the coronavirus pandemic.
Underlying earnings before interest and tax were up 46.5% to $29 million. Net profit after tax of $8.2 million was reported, which includes $10.3 million in one-off transaction and abnormal costs. The dividend has been suspended until trading conditions improve.
CEO Xavier Simone said, "these results show the strong position we would have been in to drive the next wave of growth in line with our long-term diversification strategy had the global COVID-19 pandemic not occurred."
Strengthening balance sheet and liquidity
Kathmandu is undertaking a number of initiatives to ensure it remains strongly capitalised with sufficient liquidity during the current period. The company's banking group has provided a covenant waiver for the periods ending 31 July 2020 and 31 January 2021, as well as a relaxation of certain covenants for the period ending 31 July 2021, subject to successful completion of an equity raising.
Where possible, Kathmandu is delaying and cancelling existing inventory orders based on reduced levels of expected demand. Brands are now focused on core, non-seasonal products. The company is cancelling or deferring all non-essential operating expenses and capital projects including store refurbishments. This is expected to result in NZ$8 million in savings in FY20.
The company is engaging with landlords seeking to align rental costs with sales performance. Labor costs are expected to be significantly offset by government subsidies, and the company has ceased usage of casual staff in all regions in response to reduced demand.
