Pumpkin Patch heads into the red

00:44, Sep 27 2012

Shares in Pumpkin Patch fell 2.54 per cent to $1.15 this morning after the children's clothing retailer reported a net loss for the year of $27.5 million.

The loss factors in almost $40m of reorganisation costs relating to the closure of under-performing stores in the United States and United Kingdom, plus changes to head office functions and management structures. The company will instead focus on selling its products through its own online channel and through partnerships with firms like global online retailer Amazon.

The company today reported revenues of $300.6m for the year to July, up 3.1 per cent on last year's $291.5m.

Net profit excluding the reorganisation costs was $10.1m, ahead of analysts Forsyth Barr's forecast of $9.7m but still down 20.3 per cent on the prior year's $12.6m.

Shares in the company jumped in mid-August after it upgraded its earnings outlook due to better-than-expected fourth quarter trading. The share price rose 11 per cent to $1.01, its highest level since May. Today its share price eased 3c from its $1.18 opening.

CEO Neil Cowie said in a statement to the NZX that while the trading result exceeded market expectations, it clearly reflected the conditions it faced in 2012.

"Despite the challenging environment, Australian sales were up 4 per cent and New Zealand sales rose 3 per cent driven by strong online sales growth and positive sales growth from our retail stores.

"We encountered increased promotional activity and higher product costs, mostly cotton related, and as a result gross margins were impacted."

But margins improved later in the year due to lower product costs and higher import exchange rates, improvements which the company expects to carry over into the next year.

Global online sales exceeded $30m and global online earnings before interest and tax (ebit) exceeded ebit generated by all its New Zealand retail stores combined, the company said.

"This is a major milestone and a sign of the growth potential and scalability of our online model," Cowie said.

"Our online sales in Australia are the equivalent of around 11 per cent of our retail sales which is twice that of the average Australian retailer."

Sales in Australia were up 4.4 per cent to $207.6m while sales in New Zealand rose 3 per cent to $59.2m, driven by strong online and retail sales on both sides of the Tasman. The company has 129 stores in Australia and 51 in New Zealand.

Its international sales were $33.7m, down 4.2 per cent on last year with the high Kiwi dollar exchange impacting earnings. Strong sales were seen across all online markets. The international segment comprises three stores in Ireland and company-operated websites selling product in six markets with product also being sold through 339 partners across 18 months.

As indicated last month, the company said bank debt had fallen to $54.7m from $61m a year ago while inventory levels were lower at $61.4m from $84.4m the year before.

"Although trading conditions across all markets were challenging, the company generated sales growth across its core local and international markets while at the same time undertaking a major reorganisation of its operations," said Cowie.

"The reorganisation means the company can now focus on its core strengths such as product design and online capabilities and start implementing longer term strategic initiatives."

No dividend will be paid although the company said it review its position next year.