What: Outdoor adventure apparel and equipment retailer Kathmandu Holdings Ltd (ASX: KMD) today announced a flat sales and profit result for FY14.
Sales of NZ$392.9 million were up 2.3% on the prior year, while total earnings before income tax (EBIT) were NZ$64.3 million, up 1.4% on the prior year.
So what: The flat result is partly the result of weaker consumer confidence that hit retailers across the board in the first half of calendar year 2014. Furthermore, Kathmandu closes off its books on 31 July and its results are especially sensitive to winter sales in the June and July period, unfortunately sales fell flat this year partly as a result of unusually warm weather.
However, during the year same-store sales growth was up 4.2% on an FX-adjusted basis and the retailer opened 15 new permanent stores. Australian operations were also a highlight, with same-store sales growth of 6.9%. The group now has 149 stores, with eight more openings planned for the first half of FY15.
Promisingly, online sales grew by over 35% at comparable exchange rates and contributed 5.1% of total sales. The group continues to invest in its brand and online capabilities to drive online sales internationally. Online is a potentially lucrative operation with no store costs and low staff costs meaning juicy margins can contribute to big profit growth.
What of the outlook: The group stated that "providing there is no deterioration in economic conditions we expect improved earnings from the Australasian business in FY15, however the overall outcome will be impacted by the UK investment."
Despite a disappointing performance from its UK operations so far including having to close some loss-making stores, Kathmandu is planning to invest further into the UK and Europe generally. In my opinion the UK consumer is not a natural target group for Kathmandu's products and the group would be better off looking to North America.
However, the group's niche product market means it remains one of the better retailers available on the ASX and at $2.77 it trades on around 14x FX-adjusted earnings per share for FY14.
