Half-yearly sales for KMD brand are flat, but margins have been...

Half-yearly sales for KMD brand are flat, but margins have been deteriorating and that led to the 28.5% decrease in EBIT. Flat sales also mean that Kathmandu brand sales have been decreasing since the sales figures here includes Oboz and Oboz total sales is up 10%. But, a 10% increase in Oboz sales is only 2 million. Don’t get me wrong, I wish that I have 2 million but this is immaterial to KMD sales. So KMD brand sale is only slightly down (~1%), but management is trying to hide this fact by combining KMD and Oboz sales together and only mention KMD same-store sales growth of 1.5%.


KMD brand has always performed poorly outside of winter and this showed their dependant on the winter products. The group is trying to eliminate this through the acquisition of Rip Curl, which has strong sales during summer.KMD brand sales decreased is also caused by the closure of 3 stores in Australia since 1H FY19 as part of ongoing network optimisation. It is good that management has recognised the bottom-line issues (margins) and start taking action to try to mitigate it. Closing stores will reduce expenses (rent and employees) and avoid 2 stores taking revenue from each other. This can hurt top-line (sales) in the short term but hopefully, this will encourage customers to shop online and bring the margin back up.

Overall, KMD outdoor segment sales have been stagnant and bottom-line (EBIT) has been suffering to maintain top-line (Revenue). The first reason is as mentioned above, KMD brand is highly dependent on their winter product. Management purchased Oboz and Rip Curl to attempt to fix this issue, Oboz has been performing great but the contribution to the group is still immaterial. The second reason is KMD’s core market (Aus and NZ) is in their mature stage, I doubt that we will see exceptional growth in these core-markets anymore and it seems like KMD management can see that as well.

The purchase of Oboz and Rip Curl is also mean to expand KMD products through Oboz and Rip Curl wholesale channels in North America (Oboz) and all over the world (Rip Curl). This seems like a sound strategy to me as I can see a lot of similarity between KMD and The North Face and The North Face has been very successful by having a mix between retail and wholesale. So far, we have only seen KMD focusing on their retail but with the purchase of Rip Curl recently, KMD will try to expand their wholesale channels and hopefully the KMD brand will be global.

Check out my full analysis post here: https://whealthyninja.com/kathmandu-kmd-2020-interim-result-equity-raising-analysis-part-2-2/

Enjoy and let me know what you think.