Kathmandu Share Price Rises on Double Digit Profit Growth

This morning, outdoor retailer Kathmandu Holdings [ASX:KMD] rose 5.9% to $2.06 per share.

What happened to Kathmandu Share Price?

KMD released their full-year results for the 2017 financial year. Sales were up 4.6% to NZ$445.3 million and net profit grew 13.5% to NZ$38 million.

We have now delivered two successive years of strong profit growth and four successive quarters of same store sales growth,’ KMD chief Xavier Simonet said.

In the year ahead, we aim to continue to grow in our core markets, with gross margin and operating efficiency a key management focus.

KMD’s balance sheet also improved. Total liabilities dropped from NZ$137.4 million to NZ$111.9 million, while shareholders’ equity increased from NZ$311.7 million to NZ$327.1 million. That gives KMD a debt-to-equity ratio of 34.2%. The retailer also meets interest expenses more than 27 times over.

What now for Kathmandu Holdings?

While KMD has improved operations in 2017, their historical financials leave a lot to be desired. Net profit over a five-year period has declined, shown below:

(In NZD Million) 2013 2014 2015 2016 2017
Net Profit $44.2 $42.2 $20.4 $33.5 $38.0
growth -4.6% -51.6% 64.1% 13.4%

Source: Annual Report, Kathmandu Holdings’

This slow down (from 64.1% growth to 13.4% growth) could become a problem in the future. It shows that profits may actually not have been driven by sales. Instead, what improved profits was cutting costs and improving efficiency.

Profits are profits, but you can only cut costs so far.

In the future, KMD will need to come up with innovative products and strengthen their offerings. If they don’t, I suspect profits might experience more declines as they did in 2014-15.


Härje Ronngard,

Junior Analyst, Money Morning

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