Kathmandu reported record annual results in September, including strong sales and earnings and a good gross margin improvement over the last year. This has been driven by a number of factors. The active outdoor category continues to gain attraction globally. Its store roll out continues to be strong, with Kathmandu now having 111 stores, well on their way to the target of 150 for the initial rollout. The brand is also benefitting from good design and quality improvement
Kathmandu also announced the initial development of an elite product offering coinciding with its brand refresh. The investment into existing stores is seen as part of maintaining the longer term growth potential of the brand. Tied into this is a number of relocations and refreshments of existing stores as about a third of the current stores have been identified as having greater potential than current revenue would suggest. The brand refresh also allows some differentiation going forward between life style products versus more technical products. This will allow Kathmandu to take a greater share of the overall market.
Over the last few years Kathmandu has significantly improved its design and quality of products through investment in their product team. This should enable Kathmandu to reinforce its technical credentials through the introduction of an elite range of goods. Kathmandu will have a good range of products at different price points across lifestyle and more technical products.
Going forward there are two main opportunities for Kathmandu. Firstly is the development of Kathmandu’s online strategy, now that their distribution and inventory management systems have been upgraded. It is currently in the process of building a dedicated on-line team to grow the strategy. And secondly, is for Kathmandu to leverage their brand and expand their product offering in to more outdoor activities such as Kayaking and Trail running.
Kathmandu has launched a plan called “Sustain the dream”. Its focus is on minimizing its environmental footprint, by removing plastic bags and reducing product packaging. The company is also focusing on terms of trade that enhance human rights. Strengthening communities through partnership and sponsorship and lastly investing in training and development of Kathmandu employees. The program ticks all the right boxes from a Milford Environmental, Social and Governance perspective.
Despite difficult trading conditions for retailers Kathmandu is positioned to continue to do well. The company has a great business model, a strong brand and proven growth strategies. The company should continue to grow over the next few years and in the valuation appears attractive.
Disclosure of interest: Milford is a shareholder of Kathmandu Holdings Limited through our Funds