Pumpkin Patch moving into China

BY CLAIRE MCENTEE

Children's clothing retailer Pumpkin Patch has cracked the Chinese market and will open its first store in Beijing next month.

The company has teamed up with a major Chinese clothing store operator which already manages about 400 stores.

Pumpkin Patch reported a 50 per cent jump in tax-paid profit to $14.3 million for the six months ending January, despite an 8 per cent drop in operating revenue on the same period last year.

The profit lift follows a 70 per cent decrease in bank debt to $9.6m and cost-cutting in the United States where it shut 15 stores last financial year.

The company's same-store tax-paid profit is 19.9 per cent up on the previous period.

Chief executive Maurice Prendergast said its Chinese partner – with which it had struck a "management agreement" – was an expert in childrenswear and had handled brands like high-end American fashion designer label DKNY.

China, where most of its clothes are made, was a long-term growth prospect for the mid-range retailer.

"There's no reason why they can't have 400 stores in the mid-range."

Mr Prendergast said the wholesale division was a major growth area alongside the rapidly recovering Australian market.

Pumpkin Patch had 340 "wholesale doors" around the world and was in the process of moving into markets previously occupied by British competitor Adams Kids which had gone into administration.

Pumpkin Patch had already moved into Adams Kids' store in Malta. About 10 other Adams Kids stores were ripe for the picking, Mr Prendergast said.

The company was working towards a stronger wholesale presence in the Middle East and Europe, but this would not happen overnight. The benefits of its wholesale drive would take time to filter through.

"We're not seeing great amounts of money from the wholesale division. We'll be seeing the financial benefits of what we're doing now in 18 months to two years time."

The wholesale division recorded a 12.7 per cent drop in pre-tax earnings, down from $7.8m to $6.8m. This was due to wholesalers reducing their stock levels and the impact of the high kiwi dollar, he said.

Australia remained the retailer's key market, accounting for 52 per cent of total sales and $100.18m of turnover for the half year.

The company still planned to add 30 to 40 stores to its 114 already in Australia over the next three years.

There was no reason why it could not eventually have 160 stores in Australia, Mr Prendergast said.

Trading conditions there were steadily improving and would hopefully be more consistent by next year.

"Australia has come out of the recession really well."

New Zealand accounted for 16 per cent or $30.8m of total sales, which was a credible result in a tougher market, Mr Prendergast said.

The company would open two more stores in the country before the end of the financial year, including one in Whanganui.

The results highlighted Pumpkin Patch was "not a New Zealand retailer", he said. Its business in New Zealand would continue to decrease proportionately as it expanded globally.

Its British stores had performed better year on year and the retailer was eyeing up three new stores in Ireland.

But some stores in Britain were still below par and Pumpkin Patch would look to shut them down if it could not secure cheaper rent in lease negotiations, he said.

The company's 20 remaining stores in the US had not improved greatly but it was in a better position and had reduced its same-store pre-tax loss from $3.8m to $0.8m following its consolidation there.

Forsyth Barr analyst Guy Hallwright forecast the company's full-year post-tax profit would be $24.5 million – in line with earlier predictions.

Pumpkin Patch has 50 stores in New Zealand.

- © Fairfax NZ News