By Jenny Ruth
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Tuesday 23rd February 2010 |
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Outdoor clothing and equipment retailer Kathmandu operates in a competitive market but has a strong position and a proven track record for selling good quality products at a reasonable price and is better positioned financially than most of its core competitors to expand, says First NZ Capital analyst Sarndra Urlich on initiating coverage of the stock.
"Kathmandu has in recent years invested for growth (not just a cost-out story) by rolling out new and refurbished stores, investing in supply chain improvements and headcount (both at the store and corporate level) and expanding its merchandise offer," Urlich says.
Although Australia is its key growth target, there is further but limited potential in New Zealand.
The same factors affecting most retailers, including cannibalisation, competition and the economy, will inevitably hit Kathmandu "and we are forecasting declining same-store sales post (the year ending July) 2011 to take account of some of these factors," she says.
"That being said, assuming Kathmandu continues to get traction with its store rollout, this should outweigh most negative influences."
When Kathmandu reports first-half results on March 18, sales are likely to exceed expectations, she says. Urlich values the stock at $2.22 and has a $2.40 12-month target price.
BROKER CALL: First NZ Capital rate Kathmandu as outperform.
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