Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Thursday 11th March 2010

Children's clothing company Pumpkin Patch's first-half result was impressive, especially at the bottom line, says Florian Burch, an analyst at ASB Securities.

The company reported a 50% rise in net profit to $14.3 million for the six months ended January 31.

"A significant part of the improvement in underlying performance was attributable to the closure of 15 heavily under-performing US stores in late financial 2009 and a normalisation of selling prices as the company no longer had to discount excess inventory," Burch says.

"The tone of management's comments on the outlook was generally for steady improvement in trading conditions with Australia looking better than New Zealand and the UK (somewhat surprisingly) looking better than the US, but both northern hemisphere markets will suffer in the second half from the usual seasonality," he says.

"Pumpkin Patch is well-positioned to take advantage of an upturn in consumer spending when it eventuates."

Burch says Pumpkin Patch's strong free cash flows, already low net debt and modest store opening plans (it plans to open seven new stores in the second half) mean the capital structure will likely come under review in the near future.

"Share buybacks and a higher dividend payout ratio (but with lower imputation) are obvious possibilities."

ASB Securities Investment rating: outperform.

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