Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Friday 4th February 2011

Pumpkin Patch's earnings guidance for the second half of the year ending July seems quite conservative, says Buffy Gill, an analyst at Goldman Sachs and Partners.

The retailer is expecting first-half net profit between $7.5 million and $8.5 million, down between 40% and 47% on the previous first half, and full-year net profit between $16 million and $18 million, down between 30% and 38% on the previous year.

Gill estimates second-half profit ill be down between 18% and 26% on the previous second half. Goldman Sachs' Australian economics team expects the consumer environment will improve over the next six to 12 months, she says.

Gill downgraded her full-year 2011 forecast by 10.1% to $18.4 million, but still above the company's guidance which she says reflects her expectation the second-half result will be down 10% on the previous second-half.

She is forecasting 2012 profit will be $23.3 million, down from her previous $25.1 million forecast, based on a partial recovery in Australia and the company's wholesale business and reducing losses in the US and Britain.

"Assuming some modest recovery in Australia is achieved, we don not believe our forecasts are unreasonable," she says.

The risk to her view "is if the recent underperformance incorporates some structural aspects as well as cyclical, in particular increasing competition in childrenswear and/or potential loss of brand appeal."

Recommendation: Hold.

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