Pumpkin Patch shares dive on profit warning

Children's clothing retailer Pumpkin Patch is predicting first half net profit after tax to fall to between $7.5 million and $8.5 million, after sales came in lower than expected.

The company's shares (NZX: PPL) were down 6.7% to $1.47 in midday trading following the market announcement.

Pumpkin Patch chief executive Maurice Prendergast said it was always going to be hard for the company to repeat the strong first half performance of 2010, given the challenging conditions in all markets since then.

For the six months to the end of January 2010, the company reported net profit after tax of $14.3m, up from $9.5m a year earlier. That was despite a fall in operating revenue of 8 percent to $194m.

At the time Mr Prendergast had said the 50 percent rise in earnings reflected improving trading conditions and benefits of major initiatives of the previous 18 months. Operating revenue had been affected by higher exchange rates and the closure of loss making stores in the United States

Today Mr Prendergast said that in the latest half year a slow start to the delivery of summer inventory had a severe impact on the first six weeks of the season.

"This, in conjunction with cooler weather in Australia and snowstorms in the United Kingdom, has made trading particularly difficult."

Pumpkin Patch was able to ride out the short term trading weakness due to a strong balance sheet. Its store expansion programme in Australia, Ireland, and Britain, and the trial of its new concept Charlie&Me remained on track.

"While many commentators are predicting improved retail conditions in 2011, we remain cautious especially in Australia where there are risks around interest rate increases and the impact of the "recent floods," Mr Prendergast said.

Full year earnings were forecast to be in the range of $16m to $18m. In the year to July 31, 2010, Pumpkin Patch reported net profit after tax of $25.5m, up from $14.5m a year earlier.

Today the company said that challenging trading conditions experienced in the second half of the 2010 financial year carried across into the 2011 financial year especially in the "key Australian and New Zealand markets.

The lacklustre trading environment resulted in lower than expected sales across those markets which, when coupled with the fixed nature of store overheads, led to a deleveraging impact on earnings.

Pumpkin Patch shares were down 7c to $1.50 in late morning trade.