Pumpkin Patch fights for rent cuts

Pumpkin Patch says rent levels don't reflect the state of the retail environment and the economy. Photo / Steven McNicholl

Children's clothing retailer Pumpkin Patch is expecting to enter conflicts with its landlords as it strongly resists rent increases on its stores, says incoming chief executive, Neil Cowie.

And he says the Auckland-based company will close retail sites if it fails to negotiate "fair and reasonable" terms on leases.

Pumpkin Patch outlined a comprehensive strategy aimed at slashing costs and getting the firm on a path to improved profits at its annual shareholders' meeting yesterday.

South African-born Cowie, who joined the company in 2008 and will replace chief executive Maurice Prendergast at the end of the year, said the company did not believe rent levels appropriately reflected the state of the retail environment and economy.

"For this reason we are strongly resisting any rent increases and where leases are due for renewal we are fighting for significant rent reductions," he said. "We are expecting this approach to lead to some conflict with landlords but the current situation cannot continue."

He said a priority for Pumpkin Patch was reducing its bank debt.

The company's net bank debt stood at $61 million in July.

"Capital expenditure in the coming year will be the lowest it has been since we listed. I expect it to remain significantly below long-run average levels going forward as we focus more on wholesale and online growth which requires much lower levels of capital investment," Cowie said, adding that a salary and wage freeze had been applied across its head office staff.

Chairwoman Jane Freeman said Pumpkin Patch's management team had driven down the business' cost base and, in keeping with those measures, she had reviewed board remuneration and reduced annual director fees to $50,000 and the chairwoman's fee to $85,000.

"This amounts to a reduction of the total fees paid to the current four non-executive directors of around $130,000 per annum, or 35 per cent," Freeman said.

Cowie said Pumpkin Patch was experiencing strong growth in online sales, with revenue in the year to date up 40 per cent.

The company has just launched its latest internet initiative - the Patch General Store - a "one-stop shop" where non-Pumpkin Patch items, such as nappies and baby monitors, can also be bought.

"This new site utilises our existing systems and capabilities and at the same time expands our product offering to the five million people we have on our database across our five online markets," Cowie said.

He said the company was on track to close its 16 remaining stores in the United States by January.

Pumpkin Patch would provide an update on the firm's underperforming British operations when it released its half-year result, Cowie added.

In September the company revealed underlying net profit had plunged 50.4 per cent to $12.6 million in the 12 months to July 2011, compared with $25.5 million in the previous year.

Goldman Sachs analyst Buffy Gill said yesterday's update contained positives from a "strategic point of view", but most benefits would not be seen until the 2013 financial year.

"We expect trading to remain tough across all of [Pumpkin Patch's] key markets the next nine months, with additional pain being felt from a relatively low hedged import rate, and high translation rate for wholesale/online," Gill said.

Pumpkin Patch shares closed steady yesterday at 65c.

PUMPKIN PATCH
* Founded by Sally Synnott, who remains a director, in 1990.
* Has company-owned retail stores in New Zealand, Australia, Britain and the United States, and wholesale operations in about 14 countries, including Egypt and Jordan.
* Its share price has plunged from a high of $4.95 in early 2007 to 65c yesterday.