KMD - Kathmandu

[forest]

Notice large volume sold in the last 5 days, 18.5mil shares out of a total of app 200 mil shares, this is more than 9% turnover.

Anybody likes to speculate of the significance if any???

[CJ]

Don't you know that people only buy Kathmandu when it is 50% off.

[percy]

I've been taking a quick look at Kathmandu, and I'm wondering whether its woefully underpriced?

I personally dislike retail as a sector, but KMD strikes me as a company that is priced too cheaply for a variety of reasons.

I know its just gone ex dividend, but even so, price of $1.75 or so strikes me as an opportunity.

My spreadsheet of lies and distortions (various metrics mostly based on EPS and earnings growth) thinks KMD is around 50% undervalued. (Assumptions, EPS TTM of 17.4cps and an average earnings growth rate of 8% for the next five years).

Am I missing something about this company, or are investors very skeptical about their earnings potential in UK and Australia?

Retail here,Australia and I expect UK is tuff going,with Briscoes and Hallensteins expecting hard times,[and they are the out performers].
The best research you can do is go look at a store,and ask yourself whether you would buy anything from them?Or is the whole business based on the "sales" they have, where their grossly overpriced products come down to being just dam dear? Do you like their range,store layout,staff,and presentation,Ask staff if they are a good firm to work for and how busy they are.?With retail rent,wages etc must be paid .You can't compete with internet.How good is KMD's web site? Then ask yourself do you really want to be in retail? If the answer is yes,take a cold shower,and keep taking a cold shower until your moment of weakness clears.!!! lol.

[Anna Naum]

Nice update and SP move yesterday. Now if they can just sort out the Xmas/NY sale period........

[ENP]

I do a lot of the time with retail - I don't have any retail stocks in NZ/AUS right now. However, I have some historical reasons for liking retail, some money can be made here as the Normans and Rod Duke have done. No question though that the internet has utterly disrupted the business model, say compared to the big box mentality of 1995 or so.

It is not as bad as airlines, where one year of disaster will wipe out a generation of earnings.

I looked into purchasing Kathmandu around January this year but the more research I did, the less I liked it.

On the surface it looks like a good business. It has built up a great brand and when ever I think of warm winter thermals or jumpers, I think of Kathmandu. The same can be said of its outdoor adventure range. It has this brand awareness very strong in NZ, not so much in AUS or the UK. However, it is aiming to roll out more stores and be much bigger in Australia with a plan to open much more new stores in the coming year, predominantly in AUS. It has roots set in NZ, AUS and the UK. Overseas exposure is great, compared to someone like The Warehouse who is solely dependant on NZ.

The danger is the amount of other companies that are beginning to get into that market in the same countries. Look at the likes of Macpac, North Face, etc all coming into the NZ and AUS markets. These companies have comparative quality but can edge out Kathmandu on price on numerous product lines. Walking around Albany (Auckland) shopping centre last week, Kathmandu didn't have the amount of foot traffic that others had in the area, which concerned me, considering the Xmas, New Year period brings in about a 3rd of their yearly revenue.

Looking into the nitty gritty of the financials and there are is a mixed bag. I like the look of the growth of revenue since listing. From 246 million in 2010 to 347 million in 2012. Remarkable growth. They have understood with their size they need upgrades in logistics, building a new distribution centre is a wise investment. However, if you look at the increasing inventory that it holds, the inventory turnover increasing and then the decreasing gross and net margins of that inventory, it shows me that the only way it is getting product out the door is to reduce prices and discount heavily. According to their last investor presentation, it is going to hold or minimally increase the amount of SKU's (number of products) which means there are lots of the same products piling up, which they need to get rid of before next seasons fashion kicks in. Compare this to a brand everyone loves, such as Coca Cola or Apple Ipods. People buy full price without waiting for a huge 60% off sale (such as what Kathmandu is having right now). That is the power of a brand, not just the power of a sale to get customers in the door. I also do not like the increase in debt levels since last year and the reduced return on equity and assets. Showing me that with the more stores they roll out and the bigger asset base they are creating, that they are not returning as much of ever dollar to investors.

I think if I had a longer set of data to go off, rather than just 3 years. I would make a much more clear cut decision on whether I'd invest in the company. Also, retail right now and over the next few years, I'm just not sure of. The likes of online discount retailers coming out is a red flag for me. Even though Kathmandu increased it's online sales by over 100% over the last year, I'm still not convinced.

Kathmandu's mission statement is below.

"Love of Travel & Adventure This forms the heart and soul of Kathmandu. All our daily business revolves around travel and adventure"

Which makes me think.... Do NZ, AUS and UK residents really have the extra cash to spend $300 on a jacket for adventure? When they have to pay rent, mortgages, grocery bills, petrol, medical bills, etc?

I'd love to hear your reply SparkytheClown, as we seem to have a soft spot for the same sort of companies.

[percy]

ENP.
KMD's business is based around it's sales. They must get a fright if someone pays full retail.
Fill up the store,take on temp staff,advertise like mad 60% off and go for it.Puffer jacket;KMD sale price [save $200] $299. Halensteins sale price a few weeks ago $69.
Bit of changing the subject,but my brother in law asked me what % of NZ book sales were made on the internet?.I thought it was getting pretty high so I said between 20% and 25%.No,according to Mike Hoskin on radio it is 45%.
It is not only books that sell on line.
According to www.estaronline.com in their letter to shareholders 21/11/12 "In the past six months we have seen some of our larger customers enjoy significant growth in their sales,and as a result a number of our clients have accelerated the development of new features and functionality.This work has kept our various production teams busy.Some customers are experiencing growth in excess of 40%.Several clients are moving to new dedicated server setups to help them cope with the actuality of these greater numbers of sales and revenue."
"Ezibuy,JB HiFi,Country Road,Briscoes,Rebel Sport,TS14+ and HealthPost are companies using Estaronline solutions who are all growing their online sales well."
The internet is making life very difficult for "high Street retailers".[such as KMD]

[Sideshow Bob]

I've always found reluctant to buy clothes on the internet, unless you have clothes from that brand where you can judge the size. You never know what they are going to be like otherwise. I would expact many people are the same. Their online sales might be at the expense of high street sales?? Buying the wrong size/colour etc is just a pain in the backside, especially if have to send it back and if overseas.

I recently had to buy a pair of overpants and seam-sealed jacket for a race I've got coming up. Going around Macpac, Mountain Designs and independent retailers with other brands, KMD was easily the poorest product offering, and in my perception the poorest value offer. Basic items that I'd thought would be right up thier alley. Bought some Marmot pants and a Macpac jacket at a better price, quality and better service.

[percy]

I've always found reluctant to buy clothes on the internet, unless you have clothes from that brand where you can judge the size. You never know what they are going to be like otherwise. I would expact many people are the same. Their online sales might be at the expense of high street sales?? Buying the wrong size/colour etc is just a pain in the backside, especially if have to send it back and if overseas.

I recently had to buy a pair of overpants and seam-sealed jacket for a race I've got coming up. Going around Macpac, Mountain Designs and independent retailers with other brands, KMD was easily the poorest product offering, and in my perception the poorest value offer. Basic items that I'd thought would be right up thier alley. Bought some Marmot pants and a Macpac jacket at a better price, quality and better service.

I too am reluctant to buy clothes on line,however some interesting figures from my post no.24 on The King buys Postie Plus thread.This is a year ago,so I expect sales are a lot higher.On line clothing sales in NZ $900mil which is approx the same level Postie Plus would need 782 stores to achieve.My point is there are a lot of people buying clothes on line.
I think your post is interesting as you were looking to buy product,and took you time to decide where you brought from, taking into account price,quality and service.That is true market research.

[janner]

asked me what % of NZ book sales were made on the internet?.I thought it was getting pretty high so I said between 20% and 25%.No,according to Mike Hoskin on radio it is 45%.

Would have to agree with that statement Percy..
Over the past three years all of my book purchases ( 3 new and 1 used. " Trade Me " ) have been over the internet..

No one is going to make much profit out of my buying no matter where or how it is done :-))

[janner]

I prefer dirt/oil under the finger nails type of operations..

You can always find some one to sell you clothing.. or .. A cup of coffee..