Two financial analyst reports have revealed mixed reviews for KMD Brands Limited, with one claiming the business’ stock price is overweight, while another isn’t as excited.
Financial analysts at Jarden are retaining an overweight rating, claiming the parent company to Kathmandu, Rip Curl and Oboz Footwear is trading at 26 times its expected earnings over the next 12 months, which is believed to fall to 7 times in FY27.
Meanwhile, analysts at Canaccord Genuity believe the stock is trading at 10 times, with a target price that is 15 cents less than Jarden’s future estimate.
This follows KMD’s recent trading update for the first quarter of FY25, where group sales fell by 5.8 per cent year-on-year, improving from a fall of 8 per cent in the second half of FY24.
According to Jarden analysts, trading was soft, albeit improving through a seasonally quiet period, with direct-to-consumer sales rates continuing to improve across both Kathmandu and Rip Curl since the first eight-week update released in September.
“This is particularly evident in the Kathmandu brand which we estimate turned to positive y/y growth over the last five weeks of 1Q25, driven by a strong recovery in Australia,” the report noted.
Kathmandu Australia sales increased by 4.3 per cent year-on-year according to KMD, the only positive sales result across the group in the quarter.
But Jarden analysts were quick to note that Kathmandu's Australian market is cycling a particularly weak prior corresponding period, where Kathmandu total sales had been down 24 per cent y/y in the first quarter of FY24 and down 19 per cent y/y in the second quarter.
Jarden analysts also estimate Kathmandu New Zealand sales run-rate in the last five weeks of the first quarter of FY25 had improved materially to a low single-digit decline from the 23 per cent year-on-year fall in the first eight weeks.
Meanwhile, Rip Curl DTC improved, but its wholesale channel is down by 15 per cent in the first quarter, while its sister brand Oboz is down 8 per cent.
“Commentary continues to suggest wholesale patterns are normalising, with 2H25E forward orders indicating improving trends,” Jarden analysts noted.
Meanwhile, Canaccord Genuity analysts highlighted that despite the improvements, KMD’s stock price “continues to languish” near five-year lows, having slid around 15 per cent since FY24 results in late September this year.
“Going into the update, both us and the Street had envisaged low-single-digits % growth in sales and this update illustrates improvement into key Black Friday and Christmas trading periods are required,” Canaccord analysts noted. “Ultimately, we need to see evidence of improved sales cadence for each brand to become more constructive and remind investors of the high degree of fixed cost operating leverage in this business.
“Notwithstanding today’s update, we choose to defer updating our forecasts at this current juncture given KMD has previously provided the market with a post-Black Friday trading update containing considerably more financial detail and we believe that may be a more appropriate time for us to revisit our estimates.”
The financial analysts concluded that they were pleased to see early positive feedback from initiatives addressing the gaps in breadth of seasonal offering, but added that minimal disclosure makes it difficult to assess the magnitude of improvement at this current moment.
Despite the negative sales group-wide, albeit improving, Jarden analysts pointed out that the KMD Brands’ gross margin has improved in the first quarter of FY25 - helped by a weak prior corresponding period.
While Kathmandu sales were down 2.7 per cent in the first quarter, gross profit dollar is up 3.6 per cent year-on-year as the brand cycles significant clearance sales activity in August 2023.
“We estimate gross profit dollar growth has slowed to c. +1% in the last five weeks of the quarter, with the gross profit dollar growth rate for the first eight week update being +5.1%," Jarden analysts wrote. "We continue to forecast brand gross margin expansion in 1H25E, however, with consumers looking for value into the holiday period, we do not expect a material difference through 2Q25E.”
Jarden analysts also noted that there was no explicit commentary on operating earnings - similar to Canaccord’s sentiments - with all brands reportedly managing costs against further inflationary pressures.
“We trim our near-term earnings assumptions, although note a high degree of uncertainty ahead of key trading periods,” Jarden analysts concluded. “At this stage, we trim our Rip Curl and Oboz forecasts, reflecting uncertainty in the rate of improvement in wholesale orders and no indication of a material swing in DTC trends for Rip Curl, albeit noting it remains early in the period.
“Our Kathmandu brand forecasts are unchanged, with sales rates improving as the brand cycles easy comps.”