Pumpkin Patch meets guidance but slides 20% as margins shrink

BUSINESSDESK: Pumpkin Patch, the children's clothing chain, posted a 20% decline in full-year earnings but meeting its forecast as "challenging retail conditions" in all markets squeezed margins. The stock shed 3.4%.

Profit before one-time restructuring costs fell to $10.1 million in the 12 months ended July 31, from $12.6 million a year earlier, the Auckland-based company says. Sales rose 3.1% to $300.1 million. Analysts had forecast $334.2 million for sales, for a profit of $9.2 million.

Pumpkin Patch closed under-performing stores in the US and Britain, while streamlining its head office functions and management structure to improve profitability, with the $39 million cost recognised in the 2012 results.

The restructuring has made the retailer "a simpler and more agile business", though chief executive Neil Cowie gave little guidance for the coming year.

"All markets continue to experience challenging retail conditions and increased promotional activity," he says. But overhauling the business means "we can now look towards the future with more confidence".

The stock fell 4 cents to $1.13 after the results were released, having soared 84%. It is rated "outperform" based on the consensus of five analysts in a Reuters survey.

Including one-time charges to close stores, Pumpkin patch made a net loss of $27.5 million, from a loss of $1.88 million a year earlier. The board did not declare a dividend and said it will review payments in 2013.

The group's international business unit generated increased online and wholesale sales in local currency terms but the high New Zealand dollar continued to impact the value of sales, the company says. That, combined with higher raw material costs, especially for cotton in the early part of the year, led to lower margins.

"One of our key focus areas is the development of multi-channel strategies – the merging of the traditional retail and online models is only just beginning however we believe we are ahead of the pack and will retain that position as we continue to invest in technology and supply chain capability," Mr Cowie says.

Online sales for the year exceeded $30 million and were up 50% on the previous year. The retailer is currently looking at several new international franchise and online opportunities for both its Pumpkin Patch and Charlie & Me brands.

In New Zealand, sales rose 3% to $59 million and in Australia gained 4% to $207.6 million, driven by "strong growth in online and higher retail sales".

International sales fell 4.2% to $33.7 million, reflecting the high New Zealand dollar. The international segment has three outlets in Ireland and company operated websites selling clothes in six markets. Products are also sold through 339 partner "doors" across 18 markets.

Mr Cowie gave little guidance for the outlook for 2013, saying that "notwithstanding current retail conditions following the reorganisation, which is now mostly complete, we are a simpler and more agile business that is much better placed to take advantage of the opportunities that exist across Australasia and our international markets".

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