Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Friday 10th July 2009

Pumpkin Patch's US rationalisation has effectively moved that business to breakeven point and still offers a platform for medium-term growth, says Warren Doak at Macquarie Equities.

"Some investors will be concerned by the use of Chapter 11, but it offers Pumpkin Patch with the best structure to conclude what is clearly an earnings and value-accretive restructuring," Doak says.

Last week, the company said it will close about 20 of its 35 US stores at a cash cost between $6 million and $8 million and non-cash write-offs of about $30 million.

It says the remaining stores will be at break-even point with US head office costs of $3 million, well below analysts' average estimate of a $13 million loss for the year ending July 2010.

Doak says he has raised his earnings per share forecast for 2010 by 50% to reflect the stemming of the US losses. "The restructure of the US business provides positive earnings momentum and eliminates the last major concern for investors," he says.

US retail foot traffic has been in sharp decline since mid-2007. "This industry-wide collapse in no way reflects on Pumpkin Patch's appeal as a retailer," Doak says. The US stores should deliver on their earlier promise once foot traffic recovers, he says.

BROKER CALL: Macquarie Equities rate Pumpkin Patch (NZX: PPL ) as outperform.

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