Pumpkin Patch says earnings for the 2016 year will be "significantly' below that forecast for 2015. Photo / NZ Herald
Pumpkin Patch says earnings for the 2016 year will be "significantly' below that forecast for 2015. Photo / NZ Herald
Pumpkin Patch's failure to find a buyer or white knight investor is a bad sign for the struggling children's clothing business, says an analyst.
The company announced on Friday afternoon that it had assessed proposals, but none had offered suitable value to shareholders.
But while the stock finished last week in the red the real reaction did not occur until yesterday, with Pumpkin Patch shares trading 20 per cent down at one point before closing 12 per cent below opening price at 22c.
The retailer flagged the potential for a sale in March when it said "certain third parties" had expressed an interest and its board was seeking formal proposals around either an acquisition or recapitalisation.
That sparked a rally in the share price, which closed as high as 31c on March 24, but most of those gains have now been erased.
"It's certainly not a good sign that they haven't been able to find a buyer," said Craigs Investment Partners head of private wealth research Mark Lister. "It doesn't reflect particularly well."
Chairman Peter Schuyt said last week that the retailer would continue focusing on initiatives such as closing under-performing stores, supply chain improvements and reducing head office costs. "We weren't prepared to compromise what we believe is the best outcome for all the stakeholders," Schuyt said.
Lister said Pumpkin Patch had become a highly speculative stock, with a lack of liquidity adding to the risk.
"I'm sure there is some value in the brand but it's looking pretty difficult from an investment perspective."
Debt-laden Pumpkin Patch has been struggling to gain traction in a difficult market beset with margin-sapping discounting on both sides of the Tasman, online competition and supply-chain difficulties.
Analyst Mark Lister said Pumpkin Patch had become a highly speculative stock
At the end of January Pumpkin Patch had net debt of $52.7 million and cash flow of $14.8 million.
The company turned in a loss of $10.2 million for the year to July 31, 2014, from a profit of $5.1 million a year earlier. It reported a net profit of $749,000 for the six months to January 31 this year, up from $106,000 in the earlier period.
Last week the company confirmed previous guidance for normalised earnings before interest, tax, depreciation and amortisation (ebitda) of about $14 million in the year to July 31.
Schuyt said market conditions were expected to remain challenging and earnings could be volatile.
"You've still got an environment where there's a lot of discounting and a lot of competition."
Pumpkin Patch shares closed as high as $4.95 in 2007, but the firm was hard hit by the global financial crisis and was forced to close its operations in Britain and the United States.
