Friday 27th September 2013
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Shares in Pumpkin Patch are the best performer on New Zealand's benchmark index today as the children's clothing retailer turned to a profit in 2013 after posting a loss the year earlier when it reorganised its business.
Pumpkin Patch shares rose 5 percent to $1.05 after the company said net profit was $5.1 million in the year ended July 31, following a loss of $27.5 million the year earlier. Profit before reorganisation costs was $8.5 million, within the company's $7.5 million to $9 million forecast range, and down from $10.1 million the year earlier.
However, the retracing still leaves shares in Pumpkin Patch 25 percent lower than at the start of the year, making the stock the second-worst performer on the benchmark, as it attempts to revive earnings by closing underperforming stores in the US and UK and as subdued customer demand in its key Australian and New Zealand markets prompts retailers to cut prices to lure shoppers.
Chief executive Di Humphries said today the benefits would start to be seen later in the 2014 financial year with the full benefits expected later in 2015.
"This is a transition moving into a better structure and we won't see the benefit of that for another six months but people are buying up now for it," said Rickey Ward, who holds the stock among the $450 million of equities he helps manage at Tyndall Investment Management. "You are paying ahead for a belief that this new strategy will work. If you believe it, you buy the shares. It's too early to tell but the early signs are that it looks OK."
The Auckland-based company won't pay a dividend as it focuses on reducing debt. Net bank debt in 2013 fell 12 percent to $48.3 million, while inventory fell 3.9 percent to $59 million. Pumpkin Patch will consider paying a dividend at the end of its first half as it reviews its progress and its debt reduction plans.
Pumpkin Patch launched a new range in late July which it expects will better match customer needs. It is in talks with landlords to assess options as leases coming up for renewal and is closing stores which fail to meet expectations.
Group sales fell 13 percent to $288.7 million. Sales from continuing operations, which excludes stores that have been closed, fell 4 percent. Online sales rose 18 percent to $38.7 million with the unit benefiting from higher profit margins, the company said.
"Although the company faced challenging trading conditions across its major markets during the year it continued to make significant progress in repositioning itself so it can successfully execute its long-term growth strategies in local and international markets," Humphries said in the statement. "Trading conditions across Australia, New Zealand and major international markets are expected to remain challenging in the near term."
In Australia, operating earnings fell 18 percent to $28.5 million as sales dropped 7 percent to $193 million. In New Zealand, earnings weakened 3.6 percent to $9.2 million as sales declined 6.9 percent to $55.1 million. International earnings dipped 28 percent to $4.5 million as sales increased 20 percent to $40.6 million.
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