Pumpkin Patch hatches 50 per cent profit jump

Pumpkin Patch chief executive Maurice Prendergast. Photo / Martin Sykes.

Pumpkin Patch, the children's clothing chain, posted a 50 per cent gain in first-half profit, after staunching losses in the US and U.K., and trimming interest costs by slashing bank debt. The shares jumped to a two-year high.

Net income was $14.3 million, or 8.5 cents a share in the six months ended Jan. 31, from $9.5 million, or 5.71 cents a year earlier, the company said in a statement today. Operating revenue fell 8 per cent to $194 million.

The retailer was hit with the full force of the global economic slump in the previous year, spurring it to close unprofitable stores in the US and halt its expansion in the world's biggest economy.

In the latest six months, Pumpkin Patch held its U.S loss to $755,000 from a year earlier loss of $3.8 million, while its loss in the U.K., where retailing has been hit hard by recession, dropped to $215,000 from $1.1 million. Earnings were little changed in its biggest markets, Australia and New Zealand.

"Although we still have some way to go before the markets fully recover, the company has a strong balance sheet and numerous growth opportunities that all bode well for the future," said chief executive Maurice Prendergast.

Net bank debt tumbled 70 per cent to $9.59 million and Pumpkin Patch reduce inventory by 34 per cent to $75.5 million.

Shares of Pumpkin Patch climbed 10 cents to $2.10, the highest since February 2008. Profit exceeded the $13.6 million estimate of Forsyth Barr analyst Guy Hallwright.

The company lifted its first-half dividend by 50 per cent to 4.5 cents a share, which also beat estimates.

In Australia, the retailer's biggest market, EBIT rose 2 per cent to

$19.9 million. The company plans to open four stores by the end of the financial year, bringing the total to 118.

In New Zealand, the market remained subdued, with EBIT growing 1 per cent to $6.2 million on margin improvement. The market is expected to "slowly improve" in the second half "with a fuller recovery not occurring until 2011."

In the U.K., sales were disrupted in January by snow storms, though Pumpkin Patch said trading conditions are expected to steadily improve through the remainder of the year and into 2011.

In the U.S., where the company took a year-earlier charge to close unprofitable stores, conditions are expected to "remain soft but improve slowly through into 2011.

In the company's wholesale and direct business, orders fell in response to softer retail conditions, reducing EBIT by 13 per cent to $6.8 million, while its EBIT margin improved slightly from 2009.

"Early indications are that these markets are slowly returning to more normal buying patterns" the company said.