Share Price Alert: Kathmandu Holdings Ltd 2

Welcome to 2012 Share Investor Blog readers. I hope it is a prosperous - oh OK and a happy one too.

Lets get back to business!

Kathmandu Holdings Ltd [KMD.NZX] had a very negative trading update out right at the arse end of 2012 -great to bury news at this time of year. This is after 2 years of apparent revenue and store growth and comes just two years after their IPO.

I have been skeptical of the sustainability of the growth of the company for the last 2 years as growth was pinned mostly on the opening of more stores and an unsustainable growth of same stores sales based on highly seasonal and constant sales promotions of merchandise.

To top this off competitors are nipping at Kathmandu's expensively decked out heels with both Jan Cameron's Macpac and FCO Fishing Camping Outdoors taking market share off the outdoor retail darling.

Cameron made a move to take a stake in Macpac in mid 2011 to compete head to head with KMD and it hasn't taken long for Macpac to make its mark given Jan's knowledge of the market, her retail experience and her intimate knowledge of how Kathmandu is run.

KMD shares took a 25% hit down to $1.64 on the trading update and recovered to close at $1.72 for the year. This is down from an IPO price of just over 2 bucks just over 2 years ago.

In a previous Share Price Alert for KMD back in May 2011 I warned that the share price was overvalued due to overly exuberant investor optimism which was based on management hype.

I picked this company as a buy in 2010 at under $1.50 in Share Investor's 2011 Stock Picks because I thought the IPO price was too high and expectations by management similarly optimistic but I would now have to lower my sights to reflect the higher impact from competition, especially from Macpac.

The company is still a worthy one but at a far lower price than its IPO valuation. I would therefore be happier with a valuation of $1.05c given the poor outlook for retail (for the 3rd year in a row) in general for 2012 and lower if the company does not respond well to all the negative impacts it will face this year.

Happy New Year current KMD investors and an even happier one to those of you who might get this share at half its IPO value.

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Kathmandu @ Share Investor

Jan Cameron makes her move on Kathmandu
Share Price Alert: Kathmandu Holdings Ltd
Kathmandu Holdings: Profit Upgrade lacks accurate comparison
Kathmandu Holdings Ltd: The First Year
Kathmandu Holdings Ltd: 2010 full year profit analysis
Chart of the Day: Kathmandu Holdings Ltd
Kathmandu Holdings: Market Update Misleads
Kathmandu's 2011 Results Under Pressure from Jan Cameron
Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest HighKathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum

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Kathmandu Holdings: Profit Upgrade lacks accurate comparison

The Kathmandu Holdings Ltd [KMD.NZX] trading update out today is positive for investors but it really didn't warrant a rise in share price today of nearly 14%.

I say this because the figures disclosed today are compared to last years figures which are based on Pro forma accounting methods.

I have discussed pro forma accounting before in relation to Kathmandu and it is important to note that the main feature of pro forma figures is to disguise the true nature of how a business is run.

This is part of what I wrote about KMD and the figures they used in their IPO Prospectus towards the end of 2009:

Pro Forma figures - figures based on an "as if" scenario rather than reality - are used throughout the document.

Pro-forma figures do not show investors the true state of a companies books and this alone should have prospective investors running for the hills (without a Kathmandu backpack).

I will go on however.

For example pro forma sales figures from 2007 and 2009 indicate that in 2007 Kathmandu sales were $A151.4 million and in 2009 A$215 million and respective store numbers were 58 and 82. That works out roughly the same level of sales per store for each of these years. Very hard to get this sort of consistency in any sector of the economy, least the retail industry. These particular figures have clearly been manipulated or "smoothed" to make things look good and we can safely assume this for other comparisons made. This makes the figures misleading to say the very least.

Kathmandu Holdings: Market Update Misleads Share Investor Blog, August 5 2010

So when looking at the release today we need to take into account that even though same store sales have increased by around 9% , to make a fully accurate and meaningful comparison we need to use actual raw figures from 2010 to make our comparison not the pro forma ones KMD are using in today's release.

I am of the view that we need to look at the 2011 second half year for the company when we can use raw figures from mid 2010 to make an accurate reading of how the company is going.

It will be March 2012 though before we can see a full year of results and compare them to raw accurate data from the year before.

Until then investors need to be cautious at these share price levels.


Kathmandu @ Share Investor

Kathmandu Holdings Ltd: The First Year
Kathmandu Holdings Ltd: 2010 full year profit analysis
Chart of the Day: Kathmandu Holdings Ltd
Kathmandu Holdings: Market Update Misleads
Kathmandu's 2011 Results Under Pressure from Jan Cameron
Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum
Download KMD Company Reports

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Kathmandu Holdings Ltd: The First Year

Kathmandu Holding Ltd [KMD.NZX] have had a particularly bad first year as a listed company.

Profit levels and prospectus promises have failed to hit the mark and the share price has dropped by 22% to $1.67 since its November 12 2009 debut at NZ$2.13 on the NZX.

The prospects for the company, like many other retailers, do not look good for 2011 but for KMD look quite frightful considering its high debt levels and the prospect of more spending on new stores as the company expands to grow the company quickly and not break more IPO promises.

On the share price front, $1.67 is not far off the 52 week low of $1.54 set in September 2010 but of course doesn't really show any identifiable trading pattern yet after only one year. The share price has been much weaker over the last month and we should expect a further drop in January if Christmas sales don't deliver.

Might then be time for taking another look at the fundamentals based on a much lower share price.

Happy Trading.

Kathmandu @ Share Investor

Kathmandu Holdings Ltd: 2010 full year profit analysis
Chart of the Day: Kathmandu Holdings Ltd
Kathmandu Holdings: Market Update Misleads
Kathmandu's 2011 Results Under Pressure from Jan Cameron
Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum
Download KMD Company Reports


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Kathmandu Holdings Ltd: 2010 full year profit analysis

The Kathmandu Holdings Ltd [KMD.NZX] 2010 Full Year Profit result out this morning is hard to fathom clearly because last years profit as disclosed in the 2009 Prospectus was a corrected pro -forma figure and this year profit figure has been impacted by IPO costs and associated listing costs.

The headline net profit of $25.2 million before IPO costs compares with the 2009 pro-forma net profit of $10.3 million. likewise the headline sales figure for FY 2010 was $245.8 million compared to 2009 $215.6 million.

Key Points

* Headline profit of $25.2 million compares well with $10.3 million (before adjustments for IPO costs and adjustments for comparison of 2009/2010)

*Missed most key prospectus forecasts.

*15 stores opened.

*Gross margins down.

*Dividend of 7c per share.

*Debt well down on last year (paid off from partial proceeds of IPO)

*Capital expenditure up on 2009.


Lets go by KMDs own preferred comparison though (hidden at the bottom of their release), which while hard still to get an accurate comparison year to year, because both 2010 and 2009 figures have been "adjusted" is probably the most relevant way of looking to see how they did in 2010.

2010 | 2009

Sales 245.8 240.0 5.8 2.4%
EBIT1 47.5 50.6 (3.1) -6.1%
NPBT pro-forma2 41.2 44.8 (3.6) -8.0%


1 Excluding IPO costs

So we can see that even with their own adjusted figures (which are not 100% accurate) that Kathmandu failed to hit key targets listed in their prospectus, only just beating last years sales figures by round $6 million.

The 2010 net profit then, along with other financial indicators in today's release make it hard to compare 2010 with 2009. For shareholders this means uncertainty on how well the company is accurately doing and they will only get some certainty in 12 months from now when figures can be more easily compared like for like.

On the year ahead and much like Briscoe Group Ltd [BGR.NZX] & The Warehouse Group Ltd [WHS.NZX] last week, CEO Peter Halkett concluded the 2010 profit release by saying that:

“Kathmandu is confident that given reasonable economic conditions there will be further improvement in profitability in the year ahead. The impact of the economic environment on consumer confidence, and cost pressures both domestically and internationally are a challenge, however given our market position and brand strength we remain well placed to continue our growth."

Unfortunately for shareholders Halkett seems to favour more store building over organic growth and this will come at the expense of higher capital costs, increased rental payments and possibly impact on gross margins as the company looks to focus on volume rather than quality.


Kathmandu @ Share Investor

Chart of the Day: Kathmandu Holdings Ltd
Kathmandu Holdings: Market Update Misleads
Kathmandu's 2011 Results Under Pressure from Jan Cameron
Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum
Download KMD Company Reports


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Kathmandu Holdings: Market Update Misleads

I hate to say it but I warned prospective investors in Kathmandu Ltd [KMD.NZ] before the IPO last year that the pro-forma figures used in their 2009 Prospectus were suspect and it turns out that an announcement today by Kathmandu management indicating that projected figures used in the prospectus were mostly not met by the company.

While revenue was up by more than 13% - on the back of opening 14 more stores - for the year ended 31 July 2010 to NZ$245.5 million, same store sales for the year were up 1.3% and sales from all stores exceeded the forecast issued in the prospectus by NZ$5.5 million. All these figures of course are compared to the inaccurate pro-forma accounting method used in that same prospectus, so these positive figures made in yesterday's NZX release could well be misleading.

Every other key indicator KMD made in the prospectus has been missed, with EBIT for the FY2010 year, which excludes one-off costs incurred from the IPO, to be between NZ$47.0 million and NZ$48.0 million, which will be around 5% to 7% below the prospectus FY2010 pro-forma forecast. Kathmandu’s prospectus pro-forma forecast EBIT for the FY2010 year was NZ$50.6 million. The all important profit margin is expected to be round 63%, this is below the 64% projected in the prospectus.

Please also note that the nearly $17 million cost of the IPO is not included in the $47-48 million EBIT calculation or the interest charged on the large debt (larger now due to 14 extra stores being opened) the company holds on the balance sheet.

Also, keep in mind, once again KMD are using pro forma figures which make things very difficult to accurately compare year to year figures but even these comparisons make KMD look bad.

Using EBIT figures can also be a way of hiding negative news from shareholders and the broad use of them in the KMD release yesterday must also be taken into account when trying to assess the health of the company.

I am not saying there is anything underhand going on but the way the market update was put together means investors are getting far from an accurate picture and shareholders need to either give KMD a call to see what they really mean (because they have the actual raw figures untainted by pro-forma smudging and EBIT covering) or do some calculations of their own.

The reasons for the lower figures are being blamed on the overall retail downturn by Kathmandu management:

“Throughout the final four months of the financial year, in all 3 countries that Kathmandu trades in, the retail environment has been very challenging, and more difficult than we experienced in the first half of FY2010”. Chief Executive Officer Peter Halkett

Well, duh! this was not unforeseen when the prospectus figures were being compiled and projections made. We are currently enduring one of the worst recessions in recent history and every other retailer is having high rotation sales in the hope revenue keeps turning over because people have their wallets shut.

I must repeat what I have said in other commentary made on Kathmandu (see links below). Shareholders will not see an accurate picture for the company until financials can be compared like for like (with non pro-forma figures) in the full year result September 2011.

Until then we can only gauge the health of the company from the inaccurate figures currently used by KMD management and accepted by the NZX as sufficient disclosure to investors (it aint).

The market didn't like this of course and marked KMD shares down 23c or 17% to $1.82. This is below the $2.13 IPO price and a mid April high of $2.56.

There could be value to be found in the company as the share price eases.


Kathmandu @ Share Investor

Chart of the Day: Kathmandu Holdings Ltd
Kathmandu's 2011 Results Under Pressure from Jan Cameron
Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum

Download KMD Company Reports


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Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz




c Share Investor 2010