KMD Brands: Navigating Challenges and Seizing Opportunities

As an investor in KMD Brands (NZSE:KMD), you've likely felt the sting of the company's 75% share price decline over the past five years. However, it's essential to remember that the market is cyclical, and understanding the underlying factors driving KMD Brands' performance can help you make informed decisions. Let's delve into the company's strategic decisions, financial performance, and the broader market context to gain insights into its recent struggles and future prospects.



Strategic Decisions and Management Changes

KMD Brands has made several strategic moves to address the challenges faced by the company:

1. Brand Acquisition and Rebranding: KMD Brands expanded its product offerings and global reach by acquiring Oboz in 2018 and Rip Curl in 2019. The company also rebranded from Kathmandu Holdings Limited to KMD Brands Limited in March 2022 to reflect its diversified brand portfolio. These acquisitions and rebranding efforts have helped the company to diversify its revenue streams and tap into new markets.
2. Direct-to-Consumer Sales Focus: KMD Brands has been focusing on improving direct-to-consumer sales for all three brands (Kathmandu, Rip Curl, and Oboz). This strategy has been effective, with Rip Curl global DTC sales up 2.4% YTD, Kathmandu DTC sales in line with last year YTD, and Oboz DTC online sales growing strongly YTD. The company's online sales performance has been highlighted, with YTD sales up 18.4% above last year, indicating the success of this focus.
3. Cost Management and Inventory Control: KMD Brands has been actively managing costs and inventory investment across all brands. Kathmandu has invested an additional NZ$3 million YTD to refresh brand advertising, increase product newness, and improve the customer experience. The company is targeting net debt below NZ$50 million at fiscal year-end, at least NZ$10 million lower than the prior year, indicating effective cost management and inventory control.
4. Working Capital Management: KMD Brands has been focusing on reducing working capital and improving cash flow generation. The company has a target of achieving a working capital target of 18% of sales for the full year, which is expected to drive robust cash flow generation in the second half of the year. This focus on working capital management has helped the company to maintain a healthy balance sheet and remain cautiously optimistic about its future prospects.



Financial Performance Metrics

KMD Brands' financial performance metrics have shown significant changes during the period from 2024 to 2025:

1. Revenue Growth: In the first half of FY25, KMD Brands reported a record sales performance of NZ$547.9 million, a 34% increase from the same period in 2021-22. The original Kathmandu brand saw sales rise by over 50% to NZ$194 million, with a 59% increase in Australia and a 22% increase in New Zealand. Oboz sales rose 124% to NZ$47 million in the half year, while Rip Curl sales revenue was 19% higher at NZ$306 million. Group online sales performance was up 18.4% above last year, with all three brands achieving double-digit sales growth YTD.
2. Profit Margins: Despite higher costs, KMD Brands saw a rise in its gross margin in the January half, contributing to a net earnings of NZ$14 million, well ahead of the NZ$5.1 million loss posted a year earlier. Rip Curl and Kathmandu gross margins remained resilient YTD, while Oboz clearance of inventory contributed to lower gross margins year-over-year.
3. Earnings per Share (EPS): The company's EPS for the six months ended January 2025 is not explicitly stated in the provided information. However, the net earnings of NZ$14 million for the half year indicate an improvement from the loss of NZ$5.1 million in the same period the previous year. The company declared an interim dividend of 3 NZ cents per share for the six months, which is fully franked for Australian investors.

Market Context and Outlook

KMD Brands' share price decline can be attributed to several factors, including market conditions, consumer caution, and the company's own strategic decisions. However, the company has demonstrated a strong turnaround in its financial performance, with record sales and improved profit margins. KMD Brands remains cautiously optimistic about its future prospects, with a focus on delivering positive sales growth, maximizing cash flows, and reducing inventory.

As an investor, it's essential to stay informed about the company's strategic decisions, financial performance, and the broader market context. By doing so, you can make more informed decisions and better navigate the challenges and opportunities that lie ahead.