Pumpkin Patch's non-Australasian markets remain anything but child's play

Tuesday 24th November 2009

Pumpkin Patch Ltd’s Australasian trading is stable and improving but shareholders at its AGM were told other markets remain volatile.

The Auckland-based global children’s’ clothing chain said the last financial year was the most difficult the company had faced in its 20 year history. Excluding the U.S. stores’ contribution and one-off write-downs, Pumpkin Patch reported a 7.8% increase in profit to $25.1 million.

In outlining the company’s achievements and challenges which were signaled at last year’s AGM, chief executive Maurice Prendergast highlighted the reduction of bank debt to $18 million from $63 million. Inventory has also been reduced by $42 million, and this combination of initiatives has enabled Pumpkin Patch to keep its dividend at the same level as 2008.

“Over the last 18 months we faced unprecedented volatility in all of our markets,” Prendergast said. “We continue to adjust our strategies to meet these demands and are confident that we will continue to make progress in 2010.”

He declined to give a forecast for full-year earnings, saying it is too early, given “uncertainty in all our markets” and ongoing exchange rate volatility. The retailer is “through the worst of the global recession and we are seeing some stability return,” he said.

In reviewing market segments, Prendergast said Pumpkin Patch is continuing to grow market share in its largest market, Australia. Another 30-to-40 new stores, many in sub-regional malls, will be added to the 111 stores it already has in the next three-to-four years. Though turnover across the Tasman was up 2.5% on last year, earnings fell slightly to $38.5 million.

Sales at its 51 New Zealand stores fell 1.9% and earnings dropped to $11.1 million. Wholesale and direct (internet-based) turnover increased 5.3% on last year, to $62.5 million, earnings increasing 6.7% to $16.6 million.

Trading in the U.K. and the U.S. was most trying. The company opened one new U.K. store, to now total 36. While British sales were similar to 2008, higher promotional activity contributed to an EBIT loss of $5 million.

A softened U.K. leasing market is leading to lower rental costs, although the impact of this will not be seen for a number of years while leases go through scheduled reviews. Three new stores will probably be opened this year.

“During the year we reorganised the United States store footprint to focus mainly on the West Coast stores that have performed better over the last two years,” Prendergast said. “This meant closing 15 of the 35 stores and negotiating all remaining leases at levels that reflect current market conditions,” he said.

Total costs of the reorganisation were about $40 million. Non-cash costs were about $35 million while the actual cash costs were approximately $5 million. The losses in the U.S. grew from last year’s $9 million to $14.8 million.

“This reflects how bad trading had deteriorated over the last two years and the fixed nature of our costs, mainly lease costs,” he said.

While the reorganised store network is expected to have a significant impact on total group earnings and cashflows in 2010, trading in the U.S. remains unpredictable with no immediate signs of recovery being seen, he said.

The shares were unchanged at $1.81.

Businesswire.co.nz

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