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Kathmandu (ASX:KMD) launches NZ$207M equity raise to strengthen balance sheet

Consumer Discretionary
ASX:KMD      MCAP $345.1M
01 April 2020 15:30 (AEST)

Outdoor activities retailer Kathmandu (KMD) has launched a NZ$207 million equity raising, through a pro-rata accelerated entitlement offer and a placement.

The funds will help to strengthen its balance sheet and ensure Kathmandu remains strongly capitalised through the current market uncertainties caused by COVID-19.

As an outdoor leisure retailer, the company is expecting a massive hit in sales as people are no longer purchasing outdoor gear and equipped during this time of quarantine.

Luckily, Kathmandu reported positive sales for the 1H FY20 period. The company acquired Rip Curl for A$350 million and added it to a more diversified group of three iconic brands including Kathmandu, Obōz and Rip Curl.

For its outdoor segment (Kathmandu and Obōz) online comparable sales grew by 33.1 per cent; now comprising 11.1 per cent of direct to consumer sales over the last twelve months, up from 9.5 per cent in the prior corresponding period.

For Rip Curl, total sales were up 3.7 per cent, same-store sales grew by 2.7 per cent and the surf retailer saw a significant online comparable sales growth of 19.5 per cent.

The Group’s total sales were up 58.8 per cent to $363.7 million and reported an underlying EBIT of $29 million, up 46.5 per cent from the prior corresponding period.

“These results also show the strong position we would have been in to drive the next wave of our growth in line with our long-term diversification strategy had the global COVID-19 pandemic not occurred,” Group CEO Xavier Simonet said.

“The Board is taking pre-emptive action with the capital raising announced today, to ensure our Group remains strongly capitalised during the current market uncertainties,” he added.

The equity raising includes a $30 million institutional placement and a 1.2 for 1 pro-rata accelerated non-renounceable entitlement offer to raise approximately $177 million.

The raise will issue approximately 413.9 million new ordinary shares, representing 140.3 per cent of existing shares on issue and will be offered at a price of 50 cents per share.

Due to the coronavirus, Kathmandu was forced to close all retail stores around the world and stand down thousands of staff.

To mitigate the financial impact of the pandemic, the outdoor goods company has undertaken distribution, supply chain, leases, and various operating and capital expenditure initiatives.

In addition to these initiatives and the $207 million equity raising, Kathmandu is suspending the Group’s dividend until trading conditions improve.

Positively, the company’s NZ$375 million of debt, which it secured to fund the Rip Curl acquisition, has been waived by the lender for the period between July 2020 and January 2021. Certain covenants have also been relaxed until July 2021. This was subject to Kathmandu successfully raising at least $NZ150 million.

Shares in Kathmandu remain flat and are trading for 98 cents each at 2:20 pm AEDT.

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