Pumpkin Patch shares on the rise despite fall in profits

Shares in kidswear company Pumpkin Patch are bucking the trend – climbing despite the company posting lower first half profits.

By 12.30pm the shares were up 9% to 91c, amid losses across most other stocks in the NZSX-50 index. 

“Australia and New Zealand did better than thought,” Forsyth Barr analyst Guy Hallwright says, adding that the company’s debt was also smaller than predicted.

Earnings losses in the United States and United Kingdom dragged down results at Pumpkin Patch, which today reported a 7% drop in net profit for the half year ended January 31.

Its $9.5 million net profit was held up by stronger results in the wholesale and direct sales division.

Pumpkin Patch made a push to reduce debt and inventory levels during the half-year, with bank debt down 60% or $49 million to $32.4 million.

Some of this reduction came from a $36 million gain on foreign exchange cover and a $15 million decline in underlying stock holdings also helped.

Most of the company’s loan facilities are in place until December 2010.

Group operating revenue was up 3% to $211.2 million, with the company attributing this resilience to its strong brand. Group ebit was down 8.5% to $17.5 million.

Earnings from the volatile United States market dragged down the group results.

Although new store openings boosted US sales 43.9% to $21.7 million, the divison’s ebit loss blew out to $6.2 million from a $2.5 million loss the year before.

If the US result was excluded, group earnings before interest and tax (ebit) was up 9.5% on the previous year.

In the Australian retail market, sales were marginally down with a 5% drop in ebit reflecting a greater use of promotional specials to boost market share.

Sales in New Zealand were down 4.4%, which the company labelled a creditable result in the conditions. Ebit was down 11.6% as the opening of four outlet stores trading on lower margins came into the mix.

Wholesale and direct sales turnover was up 19.0% to $27.8 million with ebit up 28.5% to $7.8 million as favourable exchange rates helped offset the margin pressure from difficult trading conditions.

Mail order and internet business development contributed to sales growth in the Australian and New Zealand markets in particular.

Sales in the United Kingdom were down 5.6%, with the division reporting an ebit loss of $1.1 million, a substantial drop from a $100,000 profit the year before.

The company says it is difficult to predict second-half results, with a seasonal downturn expected to widen losses in the UK and US.

Pumpkin Patch declared an interim dividend of 3 cents per share.

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