Pumpkin Patch US stores closures put 55 NZ jobs at risk

Closing the remaining 20 United States Pumpkin Patch stores is set to trigger layoffs in New Zealand, a union official says.

About 55 staff at Pumpkin Patch's East Tamaki head office and distribution centre were today given notice that their jobs could be made redundant, said National Distribution Union general secretary Robert Reid.

The childrens clothing company is also scaling down its UK business.

Mr Reid said his union represented 20 workers at the distribution centre, where the company had said that a six-person night shift was likely to be disestablished. Two of those workers were NDU members, and Mr Reid said they had been given a week to get back to the company with any proposals that may reduce or eliminate the need for redundancy.

"So we will be raising issues of voluntary redundancy and eliminating the use of casuals as two possible ways that these jobs could be saved," he said.

Pumpkin Patch chief executive Maurice Prendergast said that changes announced today would enhance future earnings and cashflow.

The removal of lossmaking US stores and changes to British stores and a lower overhead structure would drive much improved financial results.

The company told the stock exchange that a review of operations at its Auckland head office was expected to result in staff cuts.

It faced challenging and volatile trading conditions, and in Britain was working to lift overall trading results particularly in 17 underperforming stores.

Given continued challenging retail conditions, coupled with other factors, 2011 net profit after tax, before reorganisation costs, was expected to be between $12 million and $14 million, Pumpkin Patch said.

In the year to July 2010 the company reported net profit of $25.5m, well above the $14.5m the year before.

The company said today that trading conditions across all markets remained challenging and volatile with no indication of material improvement in the near term.

Price rises from suppliers had been "abnormally" high, particularly the cost of cotton.

While raw material prices had stabilised, ongoing increases in labour and other manufacturing costs meant it would continue to investigate new suppliers and countries from which to source products.

Also, the start to the winter season had been warmer than normal, and the high New Zealand dollar was having an impact on the value of international sales.

The overall impact on earnings before interest and tax (ebit) of the changes being made by the company was estimated to be between $9m and $11m including employee, lease, and inventory related costs, other miscellaneous administrative and advisory costs, and a non-cash impairment charge on eight British stores.

An ebit charge of between $9m and $11m would be recognised in the current financial year, Pumpkin Patch said.

Between $4m and $5m of the costs would be cash in nature, with most of the cash costs falling in the 2012 financial year as changes were implemented.

In the US store leases were expiring in the next two to three months, and while lease extensions were available the proposed terms would make the US retail operation unsustainable, especially given the poor state of the retail environment in that market, Pumpkin Patch said.

The 20 US stores would cease trading on a staggered basis in the coming six months.

Ebit losses from the US retail segment in the 2011 financial year, before reorganisation costs, were forecast to be between $2.4m and $2.9m. The full positive financial impact of the changes on total group earnings would be seen in the second half of the 2012 financial year. 

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