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KMD

Kathmandu Holdings Limited – Kathmandu Market Reaction To COVID-19

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Kathmandu Holdings Ltd (ASX: KMD) is a transnational chain of retail stores, selling travel and outdoor apparel and equipment. Kathmandu announced (1 October 2019) its acquisition of iconic Australian surf brand Rip curl resulting in the brand becoming a retail leader of clothing and equipment for travel and adventure in Australia and New Zealand. Kathmandu has a market capitalisation of A$501 million.

Updates on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation announced a total of 190,600 confirmed cases and 7,700 deaths globally. As of Thursday (19 March 2020), there have been 454 confirmed cases and 5 have died of COVID-19 in Australia. The Federal Government has upgraded its travel advice ban to a ‘Level 4’ for the entire globe due to the outbreak of COVID-19 on Wednesday (18 March 2020).

Updates on share price

In the last month, Kathmandu's share price has fallen by 55.8%. Kathmandu is currently trading at A$1.37. The downward trend is due to movement restrictions that has reduced demand, thus consumption of Kathmandu products.

How COVID 19 effects Kathmandu

There has been a significant reduction in sales in Australian and New Zealand stores, impacting performance. Due to the travel and movement restrictions in Europe, Kathmandu’s Rip Curl’s stores have closed, and will remain closed in the short-term. 

In response to the difficult trading conditions, Kathmandu is taking actions to ensure the business is in a good position after this pandemic. More specificity, Kathmandu will be implementing measures concerning reducing operating expenses, deferring non-essential capital projects, optimising labour costs, managing inventory levels and utilising travel and hiring freeze practices.

What is the outlook for Kathmandu?

Due to the uncertainty of the situation during this period, Kathmandu cannot forecast the extent to which COVID-19 will impact business in the second half of this financial year. However, Kathmandu advises that there is likely to be a material adverse impact on earnings. Kathmandu is implementing a pandemic plan to reduce exposure to its employees, to manage potential cases of COVID-19 within the business and to address operational changes required to maintain business continuity through this difficult period.

Despite Kathmandu's share price down 55.8% over the past month, the retail brand is in a sound position during this difficult trading situation. Kathmandu possesses satisfactory inventory levels for the forthcoming seasons for all brands, assisted by longer lead time of technical product categories and a diversified supplier base. Due to Kathmandu’s recent acquisitions in supply chains and implementing a channel-agnostic approach, especially online fulfilment compatibles, the retail brand will be able to assist and continue serving customer needs despite growing government restrictions on the operation of retail outlets around the globe without delay.

 


 

Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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