This morning outdoor adventure wear and equipment business Kathmandu Holdings Ltd (ASX: KMD) posted a net profit of NZ$33.5 million on sales of NZ$425.6 million for the full year ending July 31 2016. The profit and sales are up 64 percent and 4 percent over the prior corresponding period.
The company will pay a final dividend of NZ 8 cents per share to take the full year dividend to NZ 11 cents.
The result was an improvement over a prior year that was characterised by falling margins and what the company claimed was unfavourable weather. This year though same-store sales were up 2.6% on a local currency basis in its primary Australian market and management took the credit. The improvement attributed to "careful management of promotional activity" as "product newness" helped support rising gross margins.
Over the year the company opened four new stores in Australia and one in New Zealand. It also accelerated its retreat from the loss-making UK market with three stores closed to leave it on the brink of exiting the country altogether.
Overall it was a reasonable year for Kathmandu although it was cycling off a weak FY15 and the lumpy earnings results mean its share price chart has more ups and downs than a Himalayan footpath. Investors then should ask themselves whether Kathmandu can find a route to consistent earnings growth?
Much will depend on consumer confidence and brand positioning amidst a competitive environment that includes US giant The North Face. It has recently cranked up its physical move into Australia with more store openings in the likes of Sydney and Melbourne. While others also compete across Kathmandu's product range on a lower cost basis.
Kathmandu itself plans to look for growth via more online sales overseas and also flagged that it will be "exploring opportunities for Kathmandu to further expand into international markets in FY2017". Given the disastrous track record in the UK this looks a high-risk strategy with the company flagging that the "profitable Australasian business provides the foundation for this initiative".
Selling for $1.96 the stock is not especially expensive, but I think investors may be better off looking elsewhere for consistently strong long-term returns.
