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Pumpkin Patch slides to record low as rag-trade woes extend

Shares in Pumpkin Patch [NZX: PPL], the third worst performer on the NZX's All Ordinaries Index this year, fell to an all-time low as investors continue to mull the childrenswear retailer's outlook in an increasingly competitive apparel environment.

The Auckland-based retailer's shares fell as low as 38 cents at lunchtime, and were recently down 4.9 percent at 39 cents having shed 54 percent this year. The company has been looking to revive its performance, appointing Di Humphries as chief executive last August and in March announcing a strategic review including a close look at its IT infrastructure, in a bid to make its distribution and supply chain management more efficient, and the size of its store footprint in a store-by-store review.

"They're moving through significant strategic change. The business has major strengths in terms of its wholesale business globally and its online businesses," said Matthew Goodson, who manages $650 million of investment for Salt Funds Management, which holds a 5.6 percent stake in the company. "But it also has weaknesses in that it certainly appears to have over expanded its retail footprint in Australasia and their design of supply chain functions started to not be what they should be, so there is an awful lot there for the chief executive to do."

In May the company cut its guidance for after-tax earnings before reorganisation costs to a range of $1 million and $3 million for the year ending July 31, having earlier said earnings would be little changed from last year's $8.5 million.

The kidswear retailer exited the NZX 50 Index last year, and has since been followed by fellow retailers Hallenstein Glasson [NZX: HLG], the fast-fashion chain, and Brisbane-based jeweller Michael Hill International [NZX: MHI], this year. Retailers, especially those in the rag trade, are under increased pressure to keep prices cheap as shoppers are lured by bargains from international online retailers. A long summer and unseasonably warm autumn in both New Zealand and across the Tasman have further,impacted winter sales in apparel, as shoppers haven't rushed to buy warmer clothing.

"Conditions for all clothing retailers have been very difficult, particularly in Australia where the weather on the east coast has been warmer than normal and consumer confidence has taken a hit there with the economy being a little more difficult than it normally is in Australia," said Goodson.

Last month, Kathmandu Holdings [NZX: KMD], the outdoor goods retailer which gets two thirds of its sales from Australia, said,full-year earnings may decline by as much as 15 percent as warmer weather crimps sales of cold weather products such as down jackets, fleece and thermals. Shares in the Christchurch-based company rose 1.6 percent to $3.18 in afternoon trading and have dropped 9.4 percent this year.

Shares in Warehouse [NZX: WHS] were down 1 percent to $3.11, and have declined 16 percent this year. Last month New Zealand's largest listed retailer cut its forecast full-year profit to $59 million to $62 million, down from its March forecast for $67 million to $71 million, and down from $73.7 million last year saying the warmer weather had squeezed its margins.

Hallenstein was unchanged at $3.07 and has slid 21 percent this year. In June it said it managed to underpin seasonal sales, with growth of 2 percent in the almost-five months ended June 22.

In June, fellow listed retailer Postie Plus [NZX: PPG] was put into voluntary administration as it struggled with a series of supply chain disruptions in the summer of 2012 and 2013 after outsourcing its distribution centre to a third party, having shifted its headquarters to Auckland, where it anticipated growth. Since the appointment of its PwC managers a conditional agreement to sell the chain as a going concern has been reached with,an international buyer, which doesn't have a presence in New Zealand. The chain will also close 12 of its 82 stores.

Postie Plus shares last traded at 7.3 cents, prior to being halted at the end of May pending an announcement, and then suspended on the administrator appointment, and had declined 37 percent this year.

Michael Hill was unchanged at $1.33 and has declined 4.3 percent this year.

(BusinessDesk)

Comments and questions
3

Gosh, with all this doom and gloom around retail I'm beginning to think it must be getting close to being the perfect contrarian investment. When you look at a company like Hallensteins it has no debt, still makes a handsome profit, and pays an outstanding dividend yeild while Michael Hill is still increasing same stores sales, even in Australia. True Pumpkin Patch is not doing too good, but then that's not really a surprise. It's stores and clothing line still look the same today as they did 10 years ago. Boring. No fashion house or outlet is going to make a decent quid doing that.

They should have put more focus on their Urban Angel range and syndicated it into large format stores on a rack basis. By adopting a Zara type rotation on the design side and having the right supply chain they could make good money. The small kids range is dated, if Zara Kids was in NZ and Australia in a larger way - they'd be dead by now.

This is just symptomatic of NZ's economy.
In a recent visit to NYC and LA it is very obvious that NZ retail especially in the clothing arena is uncompetitive.
Why buy here or online at higher prices than other stores who sell comparable product?