Winter game of two halves for retailers

Briscoes could take another takeover tilt at Kathmandu.

Winter has become a game of two halves for main street retailers Kathmandu and Briscoes, the former on a roll and the latter taking a hit from an analyst's downgrade.
Briscoes is scheduled to report on September 19, followed by Kathmandu on the 21st.

Lifestyle and sporting goods retailer Kathmandu has provided full-year 2017 financial guidance ahead of Forsyth Barr broker Suzanne Kinnaird's expectations, while Briscoes second-quarter sales growth and guidance was below expectations.

Kinnaird also raised the prospect of Briscoes taking another takeover tilt at Kathmandu, following its failed attempt in July 2015, given Briscoes had maintained its 19.9 per cent Kathmandu stake.

"There is potential there for Briscoes to make a new offer," she said.

Kinnaird said Kathmandu delivered solid same-store sales growth and a further improvement in its debt levels, showing it was continuing to execute management plans well.

"Underpinning the higher-than-anticipated profit growth guidance was a fourth successive improvement in quarter on quarter same-store sales growth," she said.

This follows material strategic changes, the success of new product lines and improved engagement with its Summit Club members, she said.

Kathmandu's recent guidance for after-tax profit rose from $37.4 million to $38m, which was up between 11.6 per cent to 13.4 per cent on the previous year's profit.

She had revised Kathmandu's outlook, with estimated full-year after-tax profit up 4 per cent, its target price rose from $2.40 to $2.50 and it retained an "outperform" stock rating.

"Key strengths" for Kathmandu included its strong brand, market leading position in Australasia, loyalty database and vertically integrated business model, she said.

"Kathmandu delivered a material lift in profit last year, off a weak base, following a suite of strategic changes implemented by new management," Kinnaird said.

Unseasonal weather had plagued Kathmandu sales for almost two years previously, leaving it with more inventory than it needed and, subsequently, squeezed margins as it discounted stock.

"[However] the low-hanging fruit has been picked and now the focus is on better asset utilisation, modest store rollout and the online channel," Kinnaird said.

Briscoes had reported "modest" second-quarter sales growth and guidance, below expectations and recent run rates,she said.

"Homeware saw a slowdown in momentum, with a later winter inhibiting Briscoes' ability to fully capitalise on early season sales," she said.

She noted its Rebel Sport was the second half "standout", benefiting from the Lions tour, although not as much as was anticipated.

"Briscoes is a strong operator and has been enjoying a favourable macro backdrop," she said.

However, there was a risk that could slow in the future, she said.

Kinnaird had subsequently downgraded Briscoes' estimated full-year after-tax profit by 1 per cent, to $61.7m and revised its target price down from $4.20 to $4.10, maintaining a "neutral" rating on the stock.

She said while an extended summer had detracted from Briscoes being able to take advantage from key, early winter, promotional campaigns, it had indicated its stock inventory levels were "in good shape", heading into second-half trading.