Kathmandu Holdings Ltd (ASX: KMD) shares have been smashed today after the outdoor equipment retailer warned of a slowdown in sales growth due to the subdued start to trading in its Christmas sales promotion in Australia.
With the warning coming just three days out from Christmas, investors punished the stock which saw it plummet more than 22% to a 16-month low of $2.04. By stark comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has jumped 1.1%.
So What: Just five weeks ago, shareholders were advised at the retailer's annual general meeting that year-to-date sales had increased by 18.6%. That was for the beginning of FY2015, up to 16 November 2014. Since then however, same-store sales in the Australian market have been weak with the company now advising that sales are up just 14.1% (13.1% on a constant currency basis) year-to-date, with little chance of making up ground before the end of 1H 2015.
The company said it will "experience a substantial reduction in the gross profit earnings in the pre-Christmas Day trading period compared to the equivalent period in FY2014".
But the problem doesn't stop there. While conditions in the Australian market remain tough and consumer confidence remains volatile, Kathmandu anticipates that its performance in 2H 2015 could be impacted as well. This is probably more concerning for investors given that more than 70% of the company's FY2014 profits were generated in the second half.
Thankfully, sales in the company's UK and New Zealand divisions have risen compared to the prior corresponding period and at similar margins.
Now What: In light of today's update, the company will reassess its sales and pricing strategy for the second half of FY2015 and beyond. A further update on the company's progress will be delivered in February before its first-half results are released on 24 March 2015.
Although the shares are now trading at a considerable discount to Friday's closing price, investors would be wise to steer clear of Kathmandu – at least until there are clearer signs that it can improve its performance moving forward. In the meantime, there is another retailer which is posing as a far greater buy – and it offers an incredible dividend yield, too! Read on below…
