Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Sunday 13th March 2011

Pumpkin Patch managed to increase its profit margins in the six months ended January, even though net profit fell 43% to $8.1 million, says Buffy Gill, an analyst at Goldman Sachs & Partners.

“Gross profit margin increased from 59.6% in the previous comparable period to 62.4%, above Pumpkin Patch's historical average of 59.3%,” Gill says.

“We believe this was driven by reduced discounting in an effort to preserve brand perception, sales mix and better foreign exchange buying rates,” she says.

While overall operating costs increased, they fell on a per-store basis to $380,000 versus an historical average of $422,000, driven by economies of scale as well as some cost savings.

Gill is forecasting full-year net profit will be $17.9 million, at the top of management's guidance but still down 15% on the previous year. “We do not believe this should be unachievable, particularly given inventory issues have now been sorted,” she says.

Gill is forecasting earnings per share will rise 24%. “We do not think this is unreasonable, given the company earned higher absolute profits in four of the past six years when sales were as much as 25% lower and store numbers were only 137 versus 244 at present.”

Recommendation: Hold.

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