Discretionary spending holds key to Pumpkin Patch profits

Children’s clothing company Pumpkin Patch’s results are going to be hit by lower sales and tougher markets in both the US and the UK, according to analysts spoken to by NBR.

The company forecast  in November that tough trading conditions were likely to remain beyond July and it had reduced debt and cut overheads at its store and head office.

How tough those conditions have been will be highlighted in their half-yearly results, which are due to be released today.

Forsyth Barr analyst Guy Hallwright says he is expecting results that are below last year as Pumpkin Patch feels the impact of the slow down in the US and the UK.

“Overall, the results might be down as much as 20-25%,” he says.

Pumpkin Patch has over 250 stores worldwide and nearly half of its revenue comes from retailers in Australia.

Its net profit for the same period last year was $12.05 million while its net profit for the year ending June 30 2008 fell 27.5% to $17.1 million.

Mr Hallwright says Pumpkin Patch seems to have coped better than other retailers in Australia and New Zealand and attributes this partially to the gift giving component that made up some of the company's sales.

Coriolis Research head Timothy Morris says: “The key question is whether children’s clothes are a discretionary spend.”

He adds that he had been given the impression that a key element of Pumpkin Patch’s sales was grandparents buying for grandchildren.

Mr Morris says as Pumpkin Patch was really an international player, New Zealand's retail economy only had some impact on the results.

“The UK and the US are both in a bit of a pickle. Australia is still doing all right –they’re six months behind New Zealand on catching the global flu. The question is how badly are they going to catch what is going around?” he says.

New Zealand retailers had said the Christmas period was alright, which boded well for the company’s sales figures, he says

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