Narratives are currently in beta

Narrative on Purchase

Strong revenue growth supported by expansion into Europe & US, particularly through online channels
Increasing size of outdoor clothing & equipment market should buoy the company
Purchased at approx $1.42 in 2022

Update on Narrative

Retail environment has been challenging over the last few years
Kathmandu Brands have seen approx 10% - 15% declines in sales over the last year
Sales are continuing to be weak as compared to last year

Why has it been challenging?

Cost of living pressures make the retail environment challenging, particularly for the types of clothing Kathmandu sells
- Mostly high priced gear for outdoor activities. A lot of people are going to buy this sort of clothing in preparation for a holiday
- Winter promotional season is very important for the business, but high cost of living and mediocre snow years in Aus & NZ have made the last 2 winter promotions rather lacklustre

Valuation

Current trends of -8% revenue growth and tight margins show a lot of downside even at very low prices currently
Margin is really the most sensitive input right now for KMD. Expanding margin to 3% would turn the story around almost completely from very overvalued to having a fair bit of upside
- The question is where are those margins going to come from?
- Retail & Wholesale segments make up the biggest portion of the business
  - Wholesale has been put under pressure due to customers reducing inventory levels and therefore softening sales

My outlook

Given the sensitivity of the margins in the valuation for KMD, I see a decent chance that upside starts to become apparent in the next few years
- Would definitely want to see recovery of the wholesale channel within the next year
- Over the medium term would want to see Kathmandu reducing it's reliance on winter clothing and building out a more well rounded product portfolio which will reduce volatility in sales particularly as the climate changes and warmer winters become more common

How well do narratives help inform your perspective?

Disclaimer

jason is an employee of Simply Wall St, but has written this narrative in their capacity as an individual investor. jason has a position in ASX:KMD. Simply Wall St has no position in any companies mentioned. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimate's are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Margin expansion required to find significant upside