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Pumpkin Patch turns to full-year loss on store closures, impairments; farewells Prendergast

Tuesday 27th September 2011

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Pumpkin Patch, the children’s clothing chain, turned to a full-year net loss after taking charges to close U.S. stores and write-off unprofitable U.K. outlets, and announced the departure of founding managing director Maurice Prendergast.

The net loss was $1.88 million in the 12 months ended July 31, from a profit of $25.5 million a year earlier, the Auckland-based retailer said in a statement today. Sales fell 6.7% to $338 million. One-time costs were $15.6 million. Excluding items, pretax earnings were $12.6 million, in line with its guidance.

Pumpkin Patch has faced a wave of unfavourable conditions – tepid consumer demand, soaring prices of raw materials such as cotton, a strong kiwi dollar, with limited ability to rein in its fixed costs. In June it announced plans to shut its remaining 20 U.S. stores in America over six months and write off the value of eight of its 17 unprofitable stores in the U.K. The shares have dropped 60% in the past 12 months.

“The result reflects the very challenging retail environment and the effect of significant increases in garment costs due to cotton price escalation,” Prendergast said. Trading so far in the current year has been better than last year though 2012 is expected to be “another challenging year.”

Prendergast, an 18-year veteran with the company and managing director when it went public in 2004, has resigned “to focus on a number of other business and personal activities,” Pumpkin Patch said.

The board has tapped Neil Cowie, currently chief operating, as its new chief executive. Prendergast will stay on through the end of the year as a transition to Cowie’s leadership.

Prendergast said the company started the 2012 year with better inventory levels, after it began 2011 with below-pay levels of stock.

In Australia, its largest market, sales fell 9% to $180 million while operating earnings tumbled 25% to $28.7 million. Consumers in Australia have “adjusted to the more subdued economic environment” which, combined with the Queensland floods, made it tough to build sales momentum.”

New Zealand sales fell 8.3% to $54 million and earnings dropped 25% to $8.5 million, which the retailer put down to a subdued retail environment and the impact of the Christchurch earthquakes. It said trading conditions would remain subdued in its home market.

Sales in the U.K. fell 4.4% to $49.7 million though one-time charges pushed the unit to an operating loss of $7.9 million. Sales in the U.S. fell 3% to $18.4 million, with store closures and other costs resulting in an operating loss of $9.5 million.

Online and wholesale revenue was the bright spot in the 2011 year. Sales rose 1.9% to $54 million. Earnings dropped 21% to $10.9 million.

“We are currently taking a hard look at all aspects of the business,” Prendergast said. “If the results from a store are not acceptable and we can’t find a suitable solution the store will be closed.”

“This is an ongoing process that will continue throughout the 2012 year,” he said.

The company won’t pay a final dividend. The shares were unchanged at 89 cents on the NZX.


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