Kathmandu Holdings Ltd (ASX: KMD)

KMD Details

Boost from new products, better online content and improved pricing scenario: Kathmandu, a leading specialist in quality clothing and equipment for travel and adventure in New Zealand, Australia & the United Kingdom, witnessed a stock price rally of 7.4% on September 26, 2017 as the group announced for a strong FY17 result with net profit after tax (NPAT) of NZ$38.0 million for the year ended 31 July 2017, a rise of 13.5% or an increase of NZ$4.5 million over the prior year. This came at the back of new products, better online content and improved pricing scenario. Earnings before interest and tax (EBIT) surged up 12% from NZ$50.9 million to NZ$57.0 million while sales increased by 4.6% to NZ$445.3 million driven by strong sales in Australia and New Zealand despite challenges in the market owing to competition. KMD’s online sales now comprise 7.5% of group sales. Further, the gross margin challenges witnessed earlier and caused by higher input costs as a result of foreign currency movements, could be mitigated through sourcing negotiations, product newness, price action and improved stock control. Investments in digital content such as travel videos have helped the group attract customers for better engagements.
 

Strategy Update in terms of growth (Source: Company Reports)
At the back of the results, the group has reported for a record full year dividend entailing final dividend of NZ 9.0 cents per share that leads to a full year payout to record NZ 13.0 cents per share. With two successive years of strong profit growth and four successive quarters of same store sales growth, the group seems to be in a better position to continue with its growth in core markets and poised to develop new international channels for the Kathmandu brand (wholesale trials to be conducted in Europe). We give a “Buy” recommendation at the current price of $ 2.10


KMD Daily Chart (Source: Thomson Reuters) 

Nick Scali Ltd (ASX: NCK)

NCK Details

Challenging conditions to prevail in FY18: Nick Scali has entered into a conditional agreement to purchase the Property from which the Auburn NSW store operates, from Scali Consolidated Pty (Scali Consolidated) for $22 million. This however, has been said to be subject to shareholder approval to be sought by NCK at its Annual General Meeting scheduled for 26 October 2017. Meanwhile, the group had reported FY17 NPAT growth of 42.4% to $37.24 million while revenues from ordinary activities were of the order of $233 million demonstrating a growth of 14.7% over FY16. New stores opened during FY16 and FY17 along with 10% growth in same stores sales led the increase in the sales revenue. Further, tight cost controls helped decrease the operating expense as a percentage of sales (38.9% from 41.3%). NCK stock has been added to S&P/ ASX 300 Index effective September 18, 2017. However, the group expects the prevailing challenging conditions given slowdown in housing sales to impact the same stores sales in FY18, and owing to uncertainty, the group has not provided any profit guidance. We believe that the stock is “Expensive” at the current price of $ 6.46


NCK Daily Chart (Source: Thomson Reuters)

RCG Corporation Ltd (ASX: RCG)

RCG Details

Positive FY18 outlook: This year to date, the stock of RCG Corporation has plunged 53% (as at September 25, 2017), and has been removed from S&P/ ASX All Australian 200 Index effective September 18, 2017. On the other hand, the group has delivered total shareholder return of the order of 807% over 11 years to June 2017.
 

Earnings and dividends per share (Source: Company Reports)

While FY17 reported profit result was below expectation with NPAT down 2.8% to $29.4 million, revenues from ordinary activities were up from last year and underlying consolidated Earnings Before Interest Tax and Depreciation (EBITDA) of $78.3 million for the year were up 30% on the prior year. For The Athlete's Foot, the three largest corporate stores were all closed during the year for several weeks while they were converted to the new performance format, and this led to revenue loss. Further, investment in additional resources impacted the segment. For RCG Brands, sales were up 1.2% to $70.3 million. Total online sales (excluding click-and-collect and click-and-dispatch) for Omnichannel grew by 79% during FY17. The group declared final dividend of 3 cents per share and this led the full year dividend to 6 cents, which is an increase of 9% over last year. However, the group had given out a positive outlook for FY18 while FY17 result was below expectations. In fact, for the first seven weeks of the financial year, RCG reported total retail sales growth of 24% on the same period in the prior year and LFL retail sales are up 1%. The group is confident to return to good sales and profit momentum. We give a “Hold” on the stock at the current price of $ 0.69


RCG Daily Chart (Source: Thomson Reuters)

Lovisa Holdings Ltd

LOV Details

Continued cost management yielded improved results: Lovisa, one of Australia’s leading specialist fast fashion jewellery retailers, has been able to expand and optimize its store network and this drove growth and performance with a net 38 store increase in FY17. The group is optimistic about its global rollout plans for future growth. Lovisa has leveraged the strong same store sales growth for FY17 of 10.3% and a lift in gross margin to 78.8%, which led to an earnings lift of 75.5%, benefitting from key trends in the fashion jewellery sector. This generated NPAT of $29.0 million indicating a 75.5% growth. Despite softening expected after the cycling of retail price increases in 2016, the group witnessed strong comparable sales growth in the second half of FY17. Group’s efforts on cost reduction led the Cost of Doing Business (CODB) as a percentage of sales reducing to 53%. LOV could manage costs even while investing in international structure required to support the expected growth in the coming years.


FY17 Financial Result (Source: Company Reports)

The group expects to open between 20 and 30 stores in FY18 and aims to consider value enhancing, non-organic growth opportunities. Meanwhile, Graeme Fallet has resigned as CFO and has stepped down from that role effective 15 September 2017, and Chris Lauder has joined as the interim CFO. The group expects to hold its Annual General Meeting on October 31, 2017. LOV stock has surged 4% on September 26, 2017 and has been up 41% in last three months (as at September 25, 2017). We give a “Hold” on the stock at the current price of $ 5.42


LOV Daily Chart (Source: Thomson Reuters)

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