Pumpkin Patch is not a retail stock: Muir

By Duncan Bridgeman

Friday 28th May 2004

Children's clothing chain Pumpkin Patch knows all about fashion trends. After all, it does have the arduous task of prising out the secrets of the "tween-age" shopper.

It also knows that its long-term success depends on its ability to pick the next trend. If not, the soon-to-be listed company could well become the share market's own fashion victim.

It's a risk that every clothing business shares but one which Pumpkin Patch executive chairman Greg Muir believes is covered. The company, he said, produces the widest range of children's garments in the southern hemisphere some 1500 clothing items a season leaving it less susceptible to extreme fashion swings.

And because the company designs its own garments it believes it can set its own agenda.

This is also the reason Muir gets all hot under the collar when people describe Pumpkin Patch as a retail stock.

"Analysts are still getting their heads around this," he said. "But we are not into retail ... we see ourselves as a brand stock, more like Billabong than Briscoe."

Pumpkin Patch does compete with the likes of The Warehouse, Briscoe Group and Michael Hill but only at the lower end of the market. In Australia, where most of its stores are, the company is more likely to be up against Target, Big W and Swiss giant Migros.

One of a number of upco ming floats on the stock exchange, Pumpkin Patch is seeking to raise up to $120 million through an offer of 81 million shares priced between $1.20-1.40 each.

At that range the company is priced similarly to most of the main retail companies in this country. And on an enterprise value to earnings basis, it is in a position below what the company considers comparable stocks Billabong and, to a lesser extent, Michael Hill.

Analysts said the share issue, which closes next Friday, had been well received.

It the float meets its target, $40 million will be used for forward growth and another $60 million to pay existing shareholders who are selling down. Muir said all the existing shareholders were keeping about half of their original stakes.

The company is forecasting earnings before interest and tax (ebit) of $12 million for 2004 and $23 million in 2005. Ebit for 2003 was $10.1 million.

Operating profit after tax was forecast to reach $15 million in 2005, up from a forecasted $4 million this financial year.

Muir said growth would be driven from three main areas, including the recent acquisition of Hallenstein HBK, new store openings and continued improvement of existing stores.

Over the next three years Pumpkin Patch plans to open seven new stores a year in Australia and two a year in New Zealand. It might also be looking for growth in the UK, where it has 11 stores but is likely to concentrate on its local markets in New Zealand and Australia first.

The company expects to pay out 50% of after-tax profit in dividends.

Based in East Tamaki, Auckland, Pumpkin Patch started small with a mail-order catalogue and a single store in 1991, The company now sells products through 250 stores worldwide.In 13 years it has become the largest specialty childrenswear retailer in Australasia.

Muir said there were no radical plans to change the business.

"That's not to say something opportunistic might not come up but the only changes right now would be to gradually change the pace of things in existing markets."

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Pumpkin Patch is not a retail stock: ­ Muir

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