Analysts Offer Diverging Views on KMD Brands Limited
Recent evaluations by financial analysts have produced contrasting perspectives on KMD Brands Limited. While one analysis indicates that the company’s stock is rated as overweight, another expresses a more cautious outlook.
Jarden Maintains Overweight Rating Amid Mixed Results
Analysts from Jarden have upheld an overweight designation for KMD Brands, the parent company of outdoor apparel brands Kathmandu, Rip Curl, and Oboz Footwear. They assert that KMD’s stock is currently trading at 26 times its projected earnings for the next year, with expectations that this ratio will decline to 7 times by fiscal year 2027. Conversely, analysts at Canaccord Genuity suggest that the stock is trading at 10 times its earnings, setting a target price that is 15 cents lower than Jarden’s forecast. These analyses follow a recent trading update for the first quarter of fiscal year 2025, which reported a 5.8% year-on-year decrease in group sales, an improvement from an 8% drop in the latter half of fiscal year 2024.
Sales Trends and Consumer Performance
According to the analysts at Jarden, sales performance was lackluster, although there was a noted improvement as the company moved through a typically quiet seasonal period. Direct-to-consumer sales have shown positive trends for both Kathmandu and Rip Curl since the initial eight-week update released in September. Notably, Kathmandu has displayed a shift toward positive year-on-year growth during the last five weeks of the first quarter of 2025, largely attributed to a significant recovery in the Australian market. KMD reported that sales for Kathmandu in Australia rose by 4.3% compared to the previous year, marking it as the only segment within the group to show positive sales during the quarter.
Context of Previous Performance
However, Jarden’s analysts pointed out that the improvement in Kathmandu’s Australian sales comes against the backdrop of a significantly weak prior period, where sales had plummeted by 24% year-on-year in the first quarter of fiscal year 2024 and dropped by 19% in the second quarter. They also noted a substantial improvement in the sales trajectory for Kathmandu in New Zealand, which transitioned from a 23% year-on-year decline in the initial eight weeks to a low single-digit decrease in the last five weeks of the first quarter of fiscal year 2025. Meanwhile, while Rip Curl’s direct-to-consumer sales showed progress, its wholesale revenue declined by 15% during the first quarter, with Oboz experiencing an 8% decrease.
Canaccord Genuity’s Cautious Outlook
Analysts from Canaccord Genuity emphasized that despite some signs of recovery, KMD’s stock price remains stagnant, trading near five-year lows after a roughly 15% decline since the release of fiscal year 2024 results in late September. They stated that prior to the update, both their team and the market anticipated modest single-digit growth in sales. The analysts underscored the importance of seeing improved sales trends leading into critical retail periods such as Black Friday and Christmas. They expressed that a clearer demonstration of sales progression for each brand would be necessary to foster a more favorable outlook and remind stakeholders of the significant fixed cost operating leverage inherent in the business.
Need for Further Insights
The analysts concluded that while they were encouraged by initial positive responses to initiatives aimed at enhancing seasonal offerings, limited disclosure makes it challenging to fully gauge the extent of improvements at this time. Despite overall negative sales trends across the group, Jarden analysts highlighted that KMD Brands has experienced an enhancement in gross margins during the first quarter of fiscal year 2025, facilitated by a weaker performance in the corresponding prior period. Although sales for Kathmandu dipped by 2.7% in the first quarter, the brand’s gross profit increased by 3.6% year-on-year, benefiting from significant clearance sales that took place in August 2023.
Future Projections and Uncertainties
Jarden’s analysts noted that they anticipate gross profit growth to slow to approximately 1% in the final five weeks of the quarter, compared to a 5.1% growth rate reported during the first eight weeks. They continue to project an expansion in the brand’s gross margin for the first half of fiscal year 2025, but have tempered expectations for significant changes in the second quarter as consumers remain price-conscious during the holiday season. Additionally, they echoed Canaccord’s sentiment regarding the lack of specific information on operating earnings, indicating that all brands are managing costs in light of ongoing inflationary pressures.
Adjustments to Earnings Forecasts
In light of current uncertainties ahead of key trading periods, Jarden analysts have revised their near-term earnings forecasts downwards. They noted the need to adjust expectations for Rip Curl and Oboz, reflecting the uncertain pace of improvement in wholesale orders and the lack of indication for a significant upswing in direct-to-consumer trends for Rip Curl, while acknowledging that it is still early in the period. Meanwhile, forecasts for the Kathmandu brand remain stable as the sales rates continue to improve against easier comparative figures.
