UPDATED Pumpkin Patch shares sink to record-low as 1H earnings plunge 98 percent

Wednesday 19th March 2014

Shares in Pumpkin Patch plunged to a record-low after the children's clothing chain reported a slump in first-half earnings and anticipates a strong currency may lean on profit for the rest of the year.

The stock sank 19 percent to 55 cents, valuing the retailer at $115 million, after the company reported a 98 percent drop in first-half profit to $106,000 in the six months ended Jan. 31. Revenue declined 17 percent to $128 million as two failed suppliers and major flooding in China disrupted its supply chain, leaving inventory short ahead of the Christmas trading period.

"The results on the table are terrible for our shareholders. There is massive potential, it just needs to be unleashed," chief executive Di Humphries told an analyst briefing. "The most disappointing thing about these results is that we had done so much work and there is still more to do, but we are repositioning this business."

Chief financial officer Matthew Washington said the impact of New Zealand's strong currency against its Australian counterpart may have a bigger impact on earnings as the financial year unfolds, and risks in the second half are skewed to the downside.

Sales in Australia, the company's biggest market, tumbled 19 percent in the half. The kiwi dollar was recently at 94.37 Australian cents, and has gained 12 percent since July last year.

"There is more risk on the downside than the upside in the short term," Washington said. "That's purely because of what we're just seeing, or not seeing, coming out of Australia in particular, and also with that exchange rate there are a few headwinds in the latter part of the second half. "

Pumpkin Patch has gone through a period of reorganisation, reviewing operational and central support costs. Profit before those reorganisation costs, which includes losses from discontinued operations, was $1.3 million in the half, down from $6.5 million in the previous comparable period.

New Zealand sales fell 14 percent to $24.1 million and international sales declined 4 percent to $20.9 million.

Sales through its international websites rose 34 percent, it said without giving details. Online sales in Australasia were affected by the supply chain disruptions.

Humphries said consumers are still interested in the company, and that Pumpkin Patch is seeking to boost profitability by latching on to areas of growth in the retail sector.

"We can see where the strengths in online are and then really shifting the business model as to where we need it to go to go forward," Humphries said.

The company anticipates announcing new partnerships in the coming months, without providing any detail.

BusinessDesk.co.nz

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