Kathmandu Holdings Ltd‘s (ASX: KMD) share price has surged 11% so far today on the back of its market update. Kathmandu is a retailer in Australia and New Zealand selling travel and outdoor adventure apparel and equipment.
The surge in the Kathmandu share price comes with same-store sales growth returning to positive through stores re-opening, a shift to online shopping and a strengthened balance sheet with April’s equity raising. However, the group remains cautious about the demand over the medium-term given the potential of a second coronavirus wave.
Sales update pushes Kathmandu share price
For the 10 months ended 31 May 2020, total group sales were 15.1% below the comparable period last financial year. However, the group’s retail and online sales exceeded management expectations since stores began re-opening with the exception of airport stores which remain closed.
The increase in sales is a reflection of the easing of restrictions and has strengthened the group’s liquidity.
The group’s 2 businesses; Rip Curl and Kathmandu’s same-store sales were up 21% and 12.5% respectively for the last 6 weeks to 28 June 2020, adjusted for closed stores.
Pleasingly, online sales have made a material contribution to the increase seen in both businesses. This is in addition to a market update released in May reporting a surge in online sales.
However, Kathmandu saw May wholesale sales impacted by COVID-19. Rip Curl global wholesale sales were 26% below the comparable 7-month pre-ownership period last financial year.
Successful equity raise
Kathmandu completed a successful NZ$207 million equity raising in April helping to strengthen its balance sheet. The group expects total liquidity in excess of $300 million at the end of this financial year. The business came to this expectation based on its assessment of the operating environment.
Outlook
Kathmandu expects FY20 earnings-before-interest-taxation-depreciation-amortisation (EBITDA) to be above $70 million. Its gross margin is expected to be in the lower end of the 61%–63% target range.
The group is concerned about the end to government stimulus measures, the second coronavirus wave currently experienced in Melbourne and the impact of foot traffic in tourist located stores.
Chief Executive Officer, Mr Simonet commented:
“Whilst we are pleased with the strong recovery in direct recovery in direct to consumer sales over the past six weeks, we remain cautious about the medium-term levels of consumer demand. We believe that some short term factors, including government support packages and pent up demand are underpinning current sales. The heightened uncertainty that currently exists is likely to persist…”
Similarly, in the May update, the group reported the closure of the store network had a material adverse impact on FY20 earnings.
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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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