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Pumpkin Patch has announced it is to close over half its US stores as it seeks to reduce overall costs.
After a four-month review of the operations the company has decided to close 20 of the company 35 stores in the US: most of those set to close have not been open long. The remaining stores will be primarily based along the West Coast.
Pumpkin Patch’s CEO Maurice Prendergast said that the closure of the stores would create better financial outcome for the business.
“The plan we have outlined today allows us to build from a lower base in a much more structured way and enables the US company to go into the future with far more financial certainty.”
This US operations have struggled because of the extremely difficult economic environment and this has been affecting the NZ-listed company's bottom line. Pumpkin Patch’s US operations recorded an ebit loss of $8.9 million even though retail sales were up 50.6% to $27.3 million for the half year ended January 31.
Pumpkin Patch said as a result of the closures combined with a reduction in US head office costs means the segment is expected to generate a loss in the 2010 financial year in the region of $3 million against the analysts’ predicted average forecast of $13 million.
The company said the cost of the restructure will be around $38 million – the non cash costs are expected to be between $30 million and $34 million and cash costs are expected to be between $6 million and $8 million.
Mr Prendergast said Pumpkin Patch had reduced bank debt by 60%, lowered inventory levels and realigned overheads to better suit the current environment.
The company forecasted year end bank debt of $30-40m – it now expects bank debt to be at the lower end of this range.
“All of these actions will help deliver much improved financial outcomes for our shareholder in coming years.”