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Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Tuesday 28th September 2010

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 Jenny Ruth

Children's clothing company Pumpkin Patch produced a reasonable annual result given a difficult trading environment but its short-term outlook is subdued, says Buffy Gill, an analyst at Goldman Sachs JB Were.

The company reported a 39% rise in adjusted net profit to $25.8 million for the year ending July 31, slightly ahead of Gill's $25.1 million forecast, reflecting higher gross margins offsetting lower sales which were down 11% to $382 million.

In particular, wholesale sales were down 15%, largely due to the stronger New Zealand dollar against the US dollar, and Australian sales were down 5.6% in the year and down 13.5% in the second half. That caused Gill to reduce her near-term net profit forecasts.

She has cut her forecast for the year ending July 2011 to $27.5 million from $27.7 million and her 2012 forecast to $31.6 million from $32.7 million.

Gill expects any catalysts for the stock over the next six months will be neutral on balance with an anticipated recovery in Australia offset by continued subdued trading across the rest of Pumpkin Patch's markets.

"In addition, from a New Zealand stock allocation perspective, we currently see more immediate short-term value in increasing one's exposure to the Australian retail recovery through other names such as Kathmandu," she says.

Recommendation: Hold (from buy).

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