Kathmandu Holdings (ASX: KMD) surged 18.75% in the last five days (as at July 04, 2016) post providing a trading update and an overwhelming profit guidance for FY 2016 for the year ended 31 July 2016.
Positive Guidance: The company estimates that
full-year FY 2016 earnings will be in the range of $ 49 million-$ 53 million ($ 33.2 million in the previous year) for EBIT and $ 32 million-$ 35 million (previous year, $ 20.4 million) for NPAT. The new guidance is 57% to 71.5% higher than last year’s bottom line profit although this remains below Kathmandu’s earnings in 2014 when EBIT reached $64.3 million.
Year to date same-store sales growth for the 47 weeks ending 26 June 2016 is 2.6% on a constant currency basis. CEO Xavier Simonet said that despite a late start to the winter season this year, product news and management of promotional activity have resulted in a better than expected gross margin. This combined with the continuing realisation of cost efficiencies as contributed to improved outcomes for FY 2016. A substantial proportion of the sales and earnings for the year are still dependent on trading in July.
The update so far suggests that the company now expects to post a net profit which is around 60% higher than the previous year and the growth is positive.
The better than expected gross margin led to the substantial increase in net profit. The result is particularly impressive because the weather was thought to have an adverse impact on sales otherwise. However, the performance suggests that KMD’s efforts on products, pricing, supply chain and inventory management boosted growth despite challenges thrown up by the weather. Particularly, the company reported that though rate of sales growth suffered a blow in the second half given the warm weather in Australia and New Zealand, it was able to manage by cutting back on discounting to protect gross margins. KMD’s shares in the company rose after the announcement of the growth in full-year net profit. The company generates 70% of its annual revenue and earnings in the winter trading period, as well as Easter and Christmas. Last year, the company successfully defended itself against a takeover bid of $ 320 million from the New Zealand retailer Briscoe.
We look forward to the further trading update to be provided in early August and the full results for the year will be released on September 21, 2016.
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