Retail Risks – Amazon Effect | Kathmandu Jumps

27 September 2017

Global markets were mixed overnight overnight with Wall Street ending the session flat.

A number of US Federal Reserve members are making speeches this week, including after Fed Chair Janet Yellen who overnight once again backed the central bank’s plan to raise interest rates gradually, boosting the prospects of a December rate hike. What were seen as hawkish comments saw the US dollar rally overnight (which saw both the NZD and AUD currencies fall versus the USD).

The Retail sector has been under pressure across Australia and NZ this year and we remain cautious. The drivers have been continued weakness in retail trading conditions, and concerns over the expansion of Amazon and TK Maxx into Australia, as well as general competition from online retailers. One only has to look at the share price of Warehouse Group (WHS) or Myer (MYR) this year to see how the sector has fallen out of favour with investors.  

Given the struggles in the broader sector, it was somewhat surprising to see Kathmandu announce a decent full year profit result yesterday.

 

Stock in Focus: Kathmandu (KMD.NZ / KMD.AX)
Shares in KMD jumped +6% yesterday after the outdoor leisure retailer's earnings showed it is bucking the poor retail trend.

KMD revealed that new products, sharper pricing and better online content helped it lift net profit 13.5 per cent to $38m in 2017 as sales grew in New Zealand and Australia.

KMD has also cut its debt levels to record lows and announced a record full-year dividend. The quality of the result clearly pleased those that have invested in the company and likely eased concerns in the market. Going forward the key question will be how KMD fares with its mix of mix of online and physical stores and speciality products against the risk of Amazon attacking the Australian retail market.

We are currently HOLD rated on KMD.

Members should look out for a full update on KMD to be released in our weekly report. 

 

Australia & New Zealand Market Movers

The Australian share market was lower yesterday (ASX 200 index -0.22%) as energy companies were the big winners following a jump in oil prices, but that wasn't enough to prevent another disappointing session on the ASX. The gains came after Brent crude surged to its highest in more than two years on Monday night as Turkey threatened to shut down Kurdish oil shipments through its territory.

The New Zealand market was higher on Tuesday (NZX 50 index +0.22%) with Kathmandu up on its full-year earnings and A2 Milk at a record high, as volumes recovered from Monday's post-election lull. Two stocks which rebounded were CBL Corp and Sky Network Television which were up +6% and 3% respectively. In other news, NZ Refining said the impact of damage to the pipeline between the refinery and the Auckland depot will be less than initially anticipated.
 

3 Things Markets Will be Watching this Week

1.                 The Reserve Bank of New Zealand makes an interest rate decision on Thursday.

2.                 The Geopolitical situation as tensions between the US and North Korea remain very high.

3.                 NZ politics and negotiations as a coalition government is formed, as well as the outcome from the German election.

Have a Great Day,

Team

Global markets were mixed overnight overnight with Wall Street ending the session flat. A number of US Federal Reserve members are making speeches this week, including after Fed Chair Janet Yellen who overnight once again backed the central bank’s plan t

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