About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Senior Analyst
- Date posted:
- 04 August 2014, 12:17 PM
- Sectors Covered:
- Consumer Discretionary, Industrials & Developers
Kathmandu Holdings (KMD) additional trading update was consistent with our view that the late onset of winter would deliver a better result than recently downgraded guidance. Most importantly, it demonstrates that the first trading update was completely weather-related and that the key drivers of KMD's success in recent years remain firmly in place.
Late onset of winter delivers
KMD provided an additional FY14 trading update with the group now expecting EBIT to be in the range of A$62.5-65.5m (vs A$63.4m in FY13 and well ahead of recent guidance of a 10-15% fall). The previous guidance was set assuming the warmer weather patterns seen across June persisted across July. Total sales of cA$392.9m will be up 2.3% on the pcp, underpinned by new stores.
A reasonable inventory position
The onset of cool weather across both NZ and Australia arrived in time (July) for the group to peg back a large portion of the sales/earnings deficit created by the warmer start to winter this year (and coinciding with the commencement of KMD's key winter sale campaign). KMD should now manage to achieve a relatively flat EBIT margin on the pcp (although down in the 2H).
Most importantly, we are now less concerned with KMD's inventory position into FY15.
A preferred retail exposure
We have upgraded our EPS forecasts by 16% in FY14, 6% in FY15 and 6% in FY16. Our share price target increases to A$3.54 (previously A$3.33) and we retain our Add recommendation.
Kathmandu's store growth profile, digital capability, international optionality, vertical integration and above-industry lfl sales trends cement KMD as one of our top retail stocks. Evidence of some traction in international markets will be key as the local store rollout program nears completion. A stable/easing NZD could well provide a tailwind in FY15, although the exceptionally strong GP margin achieved in 1H14 will be difficult to beat.
Morgans clients can access our detailed research report on Kathmandu Holdings (KMD). If you are interested in finding out more, please contact your nearest Morgans office.
Disclaimer(s): Analyst owns shares.
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