Pumpkin Patch should see gain from smaller US presence

Pumpkin Patch might see some small local earnings lift in its interim results tomorrow as consumer confidence slowly picks up, but cutting back its US presence should have the biggest impact on its bottom line.

Operating profit is expected to be well up on last year, with Forsyth Barr analyst Guy Hallwright forecasting a 43% rise to $13.6 million, while First NZ Capital’s Sarndra Urlich is even more confident with a $14.5 million forecast.

But both analysts agree the sharp pulling back on its US expansion plans will be the key earnings driver for the past six months.

The children’s clothing retailer confirmed in June that it would be shutting 20 of its 35 US stores, targeting those outlets that had failed to gain traction in the past two years.

The US stores had been a regular drain on the company’s finances, with import quotas and the prolonged financial crisis in the States seeing consistent losses.

One-off costs associated with the closure have already been absorbed by the company after it posted a $26.7 million annual loss in September.

Closer to home, the slow return of consumer confidence should see New Zealand sales remain steady, although the recent strength of Australian sales is expected to continue, although margins should be flat on last year.

At its annual meeting in November, the company told shareholders Australia remained a major target for growth, with plans to build another 30 stores across the Tasman.

There is unlikely to be much improvement in its UK stores, although writedowns carried out last year should reduce depreciation and cut back on the ebit loss in that region.

Pumpkin Patch’s wholesale and direct sales division may also be down on last year’s result, mainly due to the stronger New Zealand dollar and squeezed margins.

As always, the company’s out look will be closely watched to see if the post-Christmas sale period has stabilised or if it has continued to be volatile.

A good result in this area may spark more interest in the company’s stock, which has been relatively subdued over the past several months.

While the announcement of its US plans in late June saw the share price (NZX:PPL) rise quickly, it has been trapped just beneath the $2 since early September.

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