Pumpkin Patch issues profit warning
The downturn in the Australian retail sector is hurting children's clothing retail chain Pumpkin Patch.
The company today released a trading update warning shareholders of a forecast profit downgrade in full-year earnings to the end of next month.
The company's share price dropped more than 8 per cent this afternoon on the news to trade at 79c, 31c below its price at the start of this month.
The trading update on the NZX said that in the past five weeks there had been a significant increase in the level of promotional activity in the Australian market, with major retailers entering end-of-season sales much earlier and far more aggressively than normal.
"This will impact retail earnings for the remainder of the year," the company said.
As a result of wholesale partners altering delivery schedules to match their local promotion plans, several deliveries that historically would been made in July have been rescheduled to August and September.
While only a matter of timing, it will affect earnings for the international side of the business unit by $600,000.
As a consequence, the full-year profit after tax, but before reorganisation costs, was now expected to be between $7.5 million and $9m, compared with $10.1m last financial year.
Pumpkin Patch chief executive Neil Cowie would not comment on the share price drop but said confidence was down in Australia.
"We were travelling relatively well in Australia until the end of May," he said.
When the retail sector began its aggressive promotional activity it became a "blood bath".
It was hard to tell what long-term effects the loss of earnings would have on the company, he said.
"The good thing about being in apparel is you get to start every season fresh, with new stock."
Cowie said New Zealand sales had been "actually OK, but not brilliant".
He was confident the company's new branding and reorganisation would come to fruition during the next season.
These initiatives would generate earnings benefits, improve working capital and lower bank debt, the company said.
Based on current trading conditions, the company anticipates bank debt at the end of next month to fall to about $50m from $54.7m at the end of the previous year.
The first product developed under the new design process will be launched in Australia and New Zealand in August.
Cowies said that despite the weak performance in the Australian retail market, the company had been closely managing its inventory across the winter season and would enter the new financial year well positioned for the launch of the summer season's product.