Kathmandu Holdings (KMD) is a New-Zealand-based designer, marketer and retailer of clothing and equipment for the travel and adventure market.

It primarily retails its Kathmandu-branded products, which range from winter clothing through to recreational goods such as sleeping bags and camping accessories.

Sales momentum

KMD reported a healthy 13.1% increase in 1H13 revenue to $165.9 million. Net profit surged 71.7% to $10.3 million.

The group is generating strong sales momentum, with constant currency revenue having risen at a 15.8% compound annual pace from 1H10 to 1H13. Australia, which is KMD's largest segment, recorded 1H13 sales growth of 21.5%. Even on a same store basis, sales were up 9.6% in Australia.

No matter how we slice it, this an encouraging result when considering some its closest competitors are struggling to report even half that growth in the tough economic environment.

This demonstrates to us the success of KMD's strategy, and we expect it to drive sales over the near-to-medium term. Indeed, it appears this momentum has carried into 2H13 with total sales for the 13 weeks leading April 28 rising 12.5% on the prior corresponding period. Same store sales were up a similarly healthy 4.1%.

Positive outlook

KMD was cautious about providing FY13 guidance, noting only that it expected a strong performance for the full year. This was despite its admission that it was facing increased competition and challenging economic conditions.

The group is still firmly in a growth phase, recently upgrading its new store rollout target from 150 stores to 170 stores across Australia and New Zealand at a rate of 15 new stores per annum.

Moreover, online sales, whilst still less than 5% of overall sales, are growing at a rapid clip. 1H13 online sales were up 50% on-year, and are likely to continue growing strongly as KMD optimises its smart phone application and adds international shipping capability to its platform.

Impressively, for a company growing its revenue at a 15% rate, it is trading on a one-year forward P/E of just 11.9x. That represents a circa 20% discount to the median of its closest peers, which we don't believe is justified when considering the growth potential from its store rollout strategy and re-branding efforts.

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