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Date : 12/11/2020

Kathmandu Holdings Limited



Market Cap : $921.7 Million


52 Week Range : $0.47 - $2.49

Share Price : $1.29

Kathmandu has showed a lot of resilience during the pandemic. Its best days are still ahead of it. A “Buy from us.

Company Analysis

Kathmandu Holdings Ltd. (NZX: KMD) was first covered by us on the 11th of September, and we recommended our members to buy at a price of NZ$ 1.23. Fast forward 2 months, the stock trades at NZ$ 1.29 a share. The stock’s recovery from the crash in March has been halted due to the uncertainties that exist not only in the retail sector but also the travel sector. Kathmandu’s niche positioning in the retail segments means that it is highly dependant on the travel and tourism industry.


The firm does not announce quarterly updates on its operations and hence its recovery is harder to track. But there had been a surge in online sales when the firm reported in late September. The move towards an online based business model has certainly fast tracked the recovery amid store closures during lockdowns and it looks like it is the way forward. Operating an online store over retail outlets come with benefits such as massive reduction in costs and the ability to more effectively use available technology to boost sales.

Roughly 87% of Kathmandu’s revenues come from Australia and New Zealand and these two countries look like they are far ahead of the curve when it comes to recovery from the pandemic than most parts of the world. The travel bubble between the two countries is bound to boost tourism and the RBA’s stimulus to put money in the pockets of Australians in a bid to increase consumer spending is another positive. Consumer behaviour data shows that Australians cannot wait to resume travel. The consumer behaviour data coupled with Australia trying to desperately boost the domestic travel industry is good news from Kathmandu. The recovery for the travel sector and hence for Kathmandu is a slow and steady one. This is where brand strength plays a vital role. Kathmandu operates under 3 brands – Kathmandu, Rip Curl, and Oboz. We will not get into details about what these brands entail as everybody reading this report probably owns products from them. This is exactly what brand strength is, and it comes with customer loyalty – two very important factors for growth in the retail segment.


At the end of FY2020, the Kathmandu brand’s sales mix consisted of 81% retail stores and 19% online. On further analysis, it can be seen that Kathmandu’s online sales went from NZ$ 48.4 million to NZ$ 80.9 million in one year – a growth of over 60% from an otherwise flatter growth rate trend.

The online growth in sales from August 2019 to March 2020, that is, pre-Covid19 saw a 30% increase and the growth rate during the pandemic, that is, April to July 2020 is over 96%. Consumer behaviour has shifted to an online based model and Kathmandu have not lagged behind in its implementation of an online business model.

Source: Kathmandu Holdings

The overall revenues from the Kathmandu brand declined by 9.7%. This goes to show how much the retail industry was affected despite the huge growth in online sales. The profits were lower as well since Kathmandu were impacted by lower margins given their aggressive sales strategies such as clearance sales and promotional activities. We are expecting demand for travel products to go up during the summer in Australia as the worst of the virus looks to be behind the Australia and NZ. The shift to an online model is also estimated to further increase online sales over that of retail in FY2021.

Rip Curl

Rip Curl was acquired by Kathmandu Holdings in 2019 and the segment has reported revenues of NZ$ 315.7 million from the period between November 2019 and July 2020. The sales mix of Rip Curl is different to that of Kathmandu. While 50% of its revenues are made from retail stores, wholesale makes up 43% and online just 8%. The brand also operates in North America and Europe along with ANZ and other parts of the world. We see a more diversified product here with Rip Curl than we do with Kathmandu – a very good acquisition for the group that certainly de-risks Kathmandu Holdings.

The group reports that Covid19 impacted Rip Curl revenues by NZ$ 70 million as both wholesale and retail store sales were down due to lockdowns and supply chain disruptions. The post lockdown recovery is good here as well as demand for surfing products has gone up given that people are working from home and they have more time on their hands. The same store sales post-lockdown in Australia saw a growth of 17.7% at the end of the financial year. This number has been adjusted by Kathmandu to account for stores that remained shut due to restrictions. The European and North American channels are extremely important for the group and we expect the sales there to pick up as their recovery from the pandemic and the next summer season looks likely to coincide. The Australia and New Zealand channel is bound to see growth during the festive season as holidays, summer sun, and increased spending due to government assistance looks likely to benefit Rip Curl.

Source: Kathmandu Holdings

Even though online sales make up just 6%, it does not mean that Rip Curl has slacked off in its shift towards an online business model. The firm has managed to increase its online sales growth by 52.6% during FY2020. The total online sales for the same period stood at NZ$ 25.5 million. The pre-Covid19 online sales growth (between August 2019 and March 2020) stood at 12.9%, and the online sales growth during Covid19 (April to July 2020) was 115%.

Source: Kathmandu Holdings

Oboz Footwear

Oboz footwear has been growing as a brand. The segment has seen a 36% growth in social medial audience. Critical marketing strategies have and are being implemented to increase brand awareness and brand value. Oboz saw a decline in revenues by 15.2% and ended FY2020 with NZ$ 37.8 million. The pre-Covid19 sales had increased by 4.6% year-on-year, and during the pandemic, the sales has dipped 52.8% until July 2020.

The segment has also incurred increase in costs due to new investments in distribution capacities and corporate expenses to strengthen its brand and product team. The group have said that operating expenses were controlled in response to the pandemic, but the FY2020 saw a growth of 4% in operating expenses.


Kathmandu Holdings have a diversified product offering and their focus also always been on growing its brand for sustainable future growth. The digital transformation looks to be underway and this will benefit the firm in the future with increased sales and decreased costs.

The retail sector has bounced back well since the disruption caused by Covid19. Australia and New Zealand especially are positioned well to lead the recovery. The added stimulus by the government and the upcoming holiday season coupled with summer season looks to be tailwinds for both Kathmandu and Rip Curl.

The wholesale businesses are estimated to improve with supply chains recovering and all geographical segments gearing up for the festive season’s retail boom. The group have made brand loyalty and data analytics a key priority for their strategy towards increasing online and digital sales. Both their segments – Outdoor and Surf are forecasted to see an increase in revenues due to the benefits of geographical diversification.

While it may take a while for Kathmandu and the clothing retail segment to get back to the highs of pre-Covid19, the stock has only partially recovered and the markets have not overstated the recovery – which looks to be the case with quite a few retail stocks.

Investors who missed our initial report are urged to click here and view our earlier report where we go into detail on Kathmandu’s financial performance over the course of FY2020.


Kathmandu has shown resilience in dealing with the pandemic. While it is not a high-growth firm, it does offer above average returns and dividends are expected to continue in FY2021 from its current suspension to deal with the pandemic. We continue to issue a “Buy” recommendation for our members who are looking for a long-term, low risk investment.

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