All sectors are trading deep in the red but consumer stocks are among the best of a bad bunch with the sector "only" shedding 1.8% compared to the 2.8% crash by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
This implies that investors do not believe the sharp sell-off that's triggered by the commodity rout will spill over into the broader economy – at least not yet.
It's been a while since we could thank adventure gear retailer Kathmandu Holdings Ltd (ASX: KMD) for any good news but the stock is helping to prop the consumer discretionary sector up today following the release of its full year result.
The stock was trading 0.8% higher at $1.28 during lunch time trade after management posted a 4.2% increase in sales to $NZ409.4 million ($371.3 million) but a 47.1% plunge in net profit to $21.8 million for the year ended July 31, 2015.
If Briscoe Group was hoping for a crash in the share price on the result, it will be disappointed. Kathmandu rejected Briscoe's takeover offer last month and the bidder said it would not increase its offer to swap five of its shares for every nine Kathmandu shares and pay a NZ20 cent a share cash consideration.
The big drop in Kathmandu profits has been driven by a number of issues such as huge discounting to remove excess inventory, which also led to what management has termed "customer confusion".
Customers who paid a premium for Kathmandu gear would be very unhappy to see the big clearance sale and that has also probably led to some ill feelings towards the brand.
Further, operating costs had increased as the company geared up for an anticipated rush of customers that never eventuated with same store sales falling 2.7% in Australia and 1.1% New Zealand.
The only reason why annual sales increased was because of the opening of new stores. Same store sales only include shops that have been opened for a year or more.
Management also blamed poor consumer sentiment and the weakening Australian dollar that drove up the cost of goods for the bad result.
But clearly poor management played a bigger role in the halving of profits. After all, the financial performance of other retailers like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) is holding up quite nicely despite facing similar macro headwinds.
There is a tiny ray of light for Kathmandu though. Gross margin actually increased by 0.7% in the second half of the financial year compared to the 1.6% drop in the first half. The improvement is due to less discounting and the success of its winter sales promotion that focused on new products instead of price.
But Kathmandu still has some ways to go to turnaround its business with management making cost cutting and adjusting its pricing and promotional strategy as its key focus for the current financial year.
There is good upside to the stock if it can get its restructure right and you only need to look at hosiery and linen distributor Pacific Brands Limited (ASX: PBG) for proof as the stock surged 78% since it showed concrete signs that it's getting on top of its problems at its full year result in August.
However, don't expect to see much of a turnaround from Kathmandu in the near-term.
The reason why the stock is holding up today is probably because it's already been badly hammered as it shed 55% of its value over the past year.
The perception of a "Briscoe put" may also be lending support. Briscoe made its offer when the stock was trading around these levels and if the stock falls more, Briscoe could make another offer for the embattled retailer.
But I won't buy the stock at these levels as I think Briscoe will only come back if the stock drops closer to $1.
