Pumpkin Patch squeezes landlords as online sales grow

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Pumpkin Patch is strong-arming Australian landlords to lower rents as it cuts costs towards a return to dividend.

The children's clothing chain posted a profit before one-time restructuring costs of $10.1 million in the 12 months ended July 31 on rising sales of $300.1 million.

Chief executive Neil Cowie told NBR ONLINE six Australian stores are at risk – three which are likely to close and three others which may close depending on rent negotiations.

"It would be pretty hard for us to sign a seven-year lease if we felt the store was marginal."

There are four new stores opening before Christmas – three Pumpkin Patch stores in Australia and one Charlie and Me store in Manakau City – and another three are under consideration.

A return to dividend will be considered at the half-year, Mr Cowie says. Pumpkin Patch last paid a dividend in April 2011. 

"The board will assess that based on our debt levels, our balance sheet and our performance in the first half.

"If they feel more confident, more comfortable they will obviously make that decision."

Clicking and collecting

Online sales for the former catalogue business last year were $30 million, or 11% of total sales, and grew 50% on the year before, thanks in part of the "click and collect" service which allows customers to order online and collect in-store. 

The lion's share of online sales are in Australia and New Zealand, he says, while the closure of its UK and US retail arms last year has boosted online sales in those countries.

Mr Cowie says the company will expand online-only sales to products like car seats and push chairs.

In overseas markets where Pumpkin Patch has products in department stores the challenge is to convince its partners to adopt a "multi-channel" model, including online, he says.

Cheaper clothing because of lower cotton prices and an easing of the New Zealand dollar should boost margins in Australia, the company's biggest profit generator.

"The fundamentals of our  business in Aussie are very strong. It's our major profit generator, and we had a 4% sales increase. We are just a little bit concerned that the underlying market is a little softer.

"The key focus will be to try, at this stage, not to discount as heavily as we have in the past.

"The big question around that is how hard the market goes and how much discount we need to do to retain market share."

Pumpkin Patch shares (NZX: PPL) were unchanged on $1.18, after starting the year at 64 cents.


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