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Kathmandu share price soars: what drove the stock up?

We examine the likely catalyst behind Kathmandu’s share price run-up today, 7 February.

Kathmandu share price soars Source: Bloomberg

Kathmandu share price climbs on trading update

Outdoor retailer Kathmandu (ASX: KMD) has broken through 52-week highs today, with its stock trading up as much as 10% during the morning session to reach $3.320.

The likely catalyst behind today’s bullish price action, besides Australia’s perpetual love affair with black puffy jackets, was a trading update that guided for a rise in first-half earnings, as well as reporting an uptick in online sales and same-store sales growth during H1.

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Key facts at a glance

Commenting on this trading update, Kathmandu's Chief Executive Officer, Xavier Simonent said:

'The Christmas trading period has seen a further shift towards Black Friday and Boxing Day events. Low December market foot traffic between these two events, unusually hot weather, and bushfires in Australia, have combined to moderate first half results.'

From an earnings perspective, the retailer is now expecting a strong rise in underlying earnings (EBIT) during the first-half of FY20, with earnings anticipated to come in 40% stronger than they did during H1 FY19.

In FY19, KMD reported earnings (EBIT) of NZ$123 million.

In step with this, the company also noted that online sales have steadily increased, rising over 30% in the first-half of the 2020 fiscal year. The company attributes this online sales momentum to 'enhancements made to the online platform in the first-half of last year.'

Finally, KMD's same store sales grew modestly by 1.5% ‘for the 26 weeks ended 26 January,’ noted management.

The Rip Curl story

Looking at the performance of Rip Curl – the iconic surf lifestyle company which Kathmandu acquired for $350 million in late 2019, it was today reported that:

'Rip Curl total sales for the three months of Kathmandu's ownership are expected to be +2.7% above the comparable three month period last year,' the company noted.

Impressively, the company further said that 'branded stores in Australia traded up +8.3% on a comparable basis in the important summer trading period.'

Kathmandu’s Rip Curl acquisition was made at a 7.3x EV/ FY19 pro forma normalised EBITDA multiple.

The coronavirus impact reviewed

Looking at broader concerns, the outdoor retailer today provided an update on the current and potential impact of the coronavirus.

Pleasingly for shareholders, Kathmandu pointed out that it expected there would not be a 'material’ supply impact – in the short-term – with sufficient inventory levels currently on hand.

Moreover, it was flagged that the ‘group has mitigation plans in place if there is a prolonged disruption to our Chinese supplier.'

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