In today’s daily we have covered stock research on Kathmandu Holdings (BUY).









 
The S&P 500 was down by 8.75points or 0.41%on Tuesday to 2082.05 points. The day's losses were broad, with each of the ten primary S&P 500 sectors in negative territory. Utilities 2014's best sector performer - led the decline with a drop of 2.1 percent. In the latest economic data, consumer confidence rose slightly less than expected in December, while U.S. single-family home price appreciation slowed less than forecast in October. 

Civeo Corp which provides temporary housing for oilfield workers and miners, late Monday slashed its workforce and forecast revenue could fall by one-third as slumping crude prices force oil producers to cut costs. The stock plunged 53.6 percent to $3.92 on volume of about 47.3 million shares, the most active day in its history. Declining issues outnumbered advancing ones on the NYSE by 1,825 to 1,218, for a 1.50-to-1 ratio; on the Nasdaq, 1,705 issues fell and 991 advanced for a 1.72-to-1 ratio favoring decliners.




S&P 500 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was down by 1%on Tuesday and closed at 5416.6 points. Commonwealth Bank of Australia and Australia and New Zealand Banking Group each fell 0.6 per cent to $85.58 and $32.04 respectively. Westpac Banking Corporation and National Australia Bank each dipped 0.4 per cent to $33.20 and $33.53 respectively. Woolworths fell 1.7 per cent to $30.57, while Wesfarmers, owner of Coles Supermarkets, lost 1 per cent to $42.02.
Horizon Oil was the worst-performing stock in the ASX 200, dropping 6.1 per cent to 15.5¢. Goldminer Regis Resources was the best-performing stock in the ASX 200, up 6.6 per cent at $1.95, as the precious metal’s spot price bounced off the previous day’s falls to $US1,188.42 per ounce. Energy was the worst-performing ­sector, down 1.9 per cent, as Brent crude oil fell to a new five-and-a-half-year low at $US57.63 a barrel. Australia’s biggest oil producer Woodside Petroleum lost 1.4 per cent to $38.03.

WPL Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day -  Kathmandu Holdings Limited (BUY)

Kathmandu Holdings Limited (KMD) recently advised same store sales, and gross margins in the first five weeks of its Christmas sale promotion in Australia below the levels achieved last year. Same store sales in New Zealand and the United Kingdom are up on the same period last year at similar gross margins yoy. During the Annual General Meeting in November 2014, the Company reported that the YTD FY2015 to 16 November 2014 sales rose by 18.6% (20.5% at constant exchange rates). Nonetheless, the Company’s total sales increase for YTD FY2015 to 21 December 2014 is 14.1% (13.1% at constant currency) owing to the reduced same store sales in Australia over the past five weeks. Based on the foregoing, KMD will experience a reduction in the gross profit earned in the pre?Christmas Day trading period compared to the equivalent period in FY2014. Group gross margin yoy was down over 5% for the first three months of FY2015, due to higher weighting of clearance sales, particularly in Australia.


FY14 Results (Source – Company Reports)

The Company still expects improved performance in the remaining 41 days of trading in 1H FY2015 owing to the varying outcomes from different countries emanating from major annual promotions (Christmas, Easter and Winter). Though there appears to be slight hiccup that any recovery in trading till 31 January 2015 may not be good enough to offset the decline in gross profit dollar experienced to date in 1H FY2015 in view of the results to date and consumer sentiment in Australia. The first half earnings will be low in comparison to the result achieved last year but overall profit result for the full year remains primarily dependent on the second half year trading which in FY2014 contributed over 70% of total year’s profit.


Summit Club Deals (Source – Company Reports)

The Company believes that Australian market may witness challenging conditions for some more time owing to which KMD is reassessing its sales and pricing strategy for 2H FY2015 and beyond. The result for 1H FY2015 will be released to the market on 24 March, and a further update on the estimate of the result will be provided in early February.

KMD reported sales growth rising NZ$8.9 million to NZ$392.9 million, up 2.3%; EBIT of NZ$64.3 million, up 1.4% and up 9% at constant exchange rates; NPAT of NZ$42.2 million, down 4.5%; Earnings per share 21.0 cents per share; and final dividend of NZ 9.0 cents per share declared (fully franked, fully imputed) and full year dividend pay-out 12.0 cents per share. Other highlights of the AGM entailed same store sale growth over 4% and opening of 15 new stores in the year. Solid same store sale growth at consistent gross margins led to growth and earnings before interest and tax. The Company emphasized that growth originates from developing a strong loyalty program such as the Summit Club and opening new stores. Now, the Company aims to accelerate another strategy to deliver material growth in the medium term by having growth of sales faster outside Australia and New Zealand with United Kingdom in focus primarily. KMD also has its products offered on online marketplaces around the world, such as eBay in Australia, Trade Me in New Zealand and Next, Amazon and eBay in the UK, which will further expand the footprint. The Company has expanded its New Zealand distribution centre by about 50% and has also committed to build a new five star green star rated office for its Christchurch staff.


Store Rollout History (Source – Company Reports)

KMD is confident of achieving a good number of store openings in FY15 and continues to plan for 180 stores in Australia and New Zealand. The Company is also making efforts for building brand awareness and Summit Club membership numbers in the UK. KMD expects that within three years the online sales across the grid may be closer to 10% rather than 5%. Strong UK sales growth continues to support KMD’s investment strategy. Australasian sales is expected to grow at similar rates to FY14 and improved earnings can be anticipated from AU/NZ, however, the overall outcome for FY15 may be reduced by the UK investment.
 

KMD Daily Chart (Source - Thomson Reuters)

KMD’s growth strategy further includes optimizing store network in view of positioning, demographics, etc.; Summit club rewards scheme enrichment; transforming systems architecture; implementing Microsoft dynamics AX financial and warehouse management modules; commitment to new Australian Distribution Centre to open for start of FY17; and so forth. All-in-all, we see potential in this gameshow in the long-run, and accordingly, reinstate a BUY recommendation for this stock at the current price of $2.04.




 
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