The Kathmandu Holdings Ltd (ASX: KMD) share price fell on Wednesday after the ASX retailer released its first-quarter FY21 update.
Despite Kathmandu shares rising more than 15% for the month, they’re still nearly 50% below pre-COVID levels at the time of writing. Is the Kathmandu share price a bargain buy today?
KMD share price chart
Kathmandu Holdings is a retailer of apparel, footwear and other equipment that operates under the Kathmandu, Rip Curl and Oboz brands.
Unlike other ASX retail shares like Temple & Webster Group Ltd (ASX: TPW) and JB Hi-Fi Limited (ASX: JBH) which benefitted from travel restrictions and government-mandated lockdowns, Kathmandu’s thematic of adventure and travel, unfortunately, did not play to its advantage.
Recent financial performance
In the first quarter of FY21, the group managed to grow sales by 72% from the prior year. However, this was mainly due to the recent Rip Curl acquisition.
On a pro-forma basis, group direct to consumer sales (including online) were down 24.1%. Its wholesale segment also took a hit – down 14.4% for the first quarter.
Sales have been impacted recently not only from lower demand for travel-related products but also due to significant store closures. For most of the first quarter, 60 stores in the greater Melbourne region had their doors shut. Stores were also closed in Auckland, as well as airport stores in Australia.
Is the Kathmandu share price a buy today?
Some of the concerns I hold are more broadly related to retail in general, rather than Kathmandu in particular. Kathmandu does have quite a bit of international exposure to countries in the UK, Europe and Australasia.
While Australia has seen a strong recovery thanks to generous stimulus measures, other countries may not be in a similar position. As a result, having such a geographically diverse range of brands could play on the length of the recovery here.
It is also important to note that over the last 10 years or so, the company has struggled to grow its earnings, which appear to be quite cyclical based on seasonal changes. Fashion retailing is hard enough on its own keeping up with the latest trends. Kathmandu has the additional challenge of being exposed to seasonal categories, which means that no matter what the conditions are it needs to have relevant products in supply.
Buy/hold/sell
I would be holding on Kathmandu shares for the moment. I would probably be waiting to see how well the Rip Curl brand can integrate and grow over at least the next year before I’d consider buying shares.
The macro environment is challenging, and I’d rather invest where these factors work in a company’s favour rather than against it.
If you’re after share ideas, here are 3 ASX growth shares I’m liking at the moment.
