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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Kathmandu Trading update initial impressions — COVID impacts clouding long-term potential</h2>
Kathmandu’s (KMD) 1H22 trading update is heavily impacted by COVID-19 restrictions, but highlights positive sales momentum during 2Q22. The company reiterated that an incremental NZ$35m of COVID-related costs were incurred during the period. Moreover, a NZ$14m increase in marketing spend has also weighed on profitability. Underlying EBITDA (pre-IFRS 16) guidance for 1H22 is for between NZ$9m to NZ$11m, implying a post-IFRS 16 EBITDA of NZ$53m to NZ$55m, on our estimates.
We expect a moderation of consensus expectations, however, we view these highlighted cost pressures as temporary and remain attracted to the long-term proposition of KMD’s brands.
The group intends to release its 1H22 result on Wednesday, 23 March 2022.
Divisional detail
<ul>
<li>Rip Curl (direct to customer [DTC] same-store-sales [SSS] -1.6%) — 2Q22 SSS were ~+3% with the business attributing growth to the strength of the brand and continued resurgence in surfing participant numbers generally.</li>
<li>Kathmandu (DTC SSS +2.8%) — 2Q22 SSS were +15%, which demonstrates a strong rebound following weakness in 1Q22. That said, 2Q22 SSS were still -21% below 2Q20 due to the brand’s heavy reliance on international travel and tourism.</li>
<li>Oboz — Forward orders into FY23 continue to support medium-term growth targets, however, factory shutdowns in 1Q22 meant that ~50% of orders were unable to be filled. This will have weighed on group margins during 1H22.&nbsp; &nbsp;</li>
<li>Online —&nbsp;&nbsp;Online sales represented 17% of DTC sales through the period, with Kathmandu up ~+49% and Rip Curl ~+12%.</li>
</ul>
Outlook
Management is guiding to group sales of ~NZ$405m for the half (versus NZ$411m in 1H21), despite an increase in lost trading days (+65% on 1H21) during the period. The business is facing a number of short-term pressures including supply constraints, particularly in wetsuits and footwear, accompanied by cost pressures including elevated freight rates. We expect these pressures to moderate in 2H22. Encouragingly, the group’s wholesale demand remains at record levels and reduced COVID restrictions in 2H22 is supportive of an improved backdrop for KMD, during what is seasonally its stronger period (1H/2H profitability split ~25%/75%).

Kathmandu Trading update initial impressions — COVID impacts clouding long-term potential
Kathmandu’s (KMD) 1H22 trading update is heavily impacted by COVID-19 restrictions, but highlights positive sales momentum during 2Q22. The company reiterated that an incremental NZ$35m of COVID-related costs were incurred during the period. Moreover, a NZ$14m increase in marketing spend has also weighed on profitability. Underlying EBITDA (pre-IFRS 16) guidance for 1H22 is for between NZ$9m to NZ$11m, implying a post-IFRS 16 EBITDA of NZ$53m to NZ$55m, on our estimates.
We expect a moderation of consensus expectations, however, we view these highlighted cost pressures as temporary and remain attracted to the long-term proposition of KMD’s brands.
The group intends to release its 1H22 result on Wednesday, 23 March 2022.
Divisional detail

Rip Curl (direct to customer [DTC] same-store-sales [SSS] -1.6%) — 2Q22 SSS were ~+3% with the business attributing growth to the strength of the brand and continued resurgence in surfing participant numbers generally.
Kathmandu (DTC SSS +2.8%) — 2Q22 SSS were +15%, which demonstrates a strong rebound following weakness in 1Q22. That said, 2Q22 SSS were still -21% below 2Q20 due to the brand’s heavy reliance on international travel and tourism.
Oboz — Forward orders into FY23 continue to support medium-term growth targets, however, factory shutdowns in 1Q22 meant that ~50% of orders were unable to be filled. This will have weighed on group margins during 1H22.&nbsp; &nbsp;
Online —&nbsp;&nbsp;Online sales represented 17% of DTC sales through the period, with Kathmandu up ~+49% and Rip Curl ~+12%.

Outlook
Management is guiding to group sales of ~NZ$405m for the half (versus NZ$411m in 1H21), despite an increase in lost trading days (+65% on 1H21) during the period. The business is facing a number of short-term pressures including supply constraints, particularly in wetsuits and footwear, accompanied by cost pressures including elevated freight rates. We expect these pressures to moderate in 2H22. Encouragingly, the group’s wholesale demand remains at record levels and reduced COVID restrictions in 2H22 is supportive of an improved backdrop for KMD, during what is seasonally its stronger period (1H/2H profitability split ~25%/75%).

Kathmandu (KMD): Trading Update Initial Impressions — COVID Impacts Clouding Long-Term Potential

Kathmandu Holdings

Kathmandu (KMD): Trading Update Initial Impressions — COVID Impacts Clouding Long-Term Potential