Pumpkin Patch quits UK operation

Photo / Steven McNicholl

Pumpkin Patch, the children's clothing retailer, will quit its United Kingdom operation, appointing administrators to the unit and flagging restructuring costs as high as $32 million.

The retailer, which abandoned the US last year, says its 36-store UK operation hasn't made an acceptable return and chief executive Neil Cowie said "it would continue to make losses for some time to come."

Because of the dour outlook, the store has appointed administrators who may have to shut the stores if no alternatives can be found.

The company will wear the reorganisation costs in the first half of the financial year, with cash costs like to be between $3 million and $5 million, and non cash costs in a range of $25 million to $27 million.

That will cover impairing the UK assets, foreign exchange mark to market losses and other costs such as lease payments and employee commitments.

The pre-tax impact on total group shareholder funds will be between $11 million and $13 million.

"It is a decision we had to make as it just doesn't stack up for us or our shareholders to continue to maintain the existing operation up there," Cowie said in a statement.

"The return on investment from the UK retail operation has not been acceptable and the current trading losses being generated only accentuate this."

Last year Pumpkin Patch decided to shut its US stores, write-off unprofitable UK outlets, and cut head office staff, as the weak global economy continued to bite into foreign sales. It later disappointed investors when it posted a loss of $1.88 million in the year ended July 31.

The retailer's shares yesterday gained 4.4 percent to 70 cents, valuing the company at $117.8 million by market capitalisation.

The company expects to improve operating earnings and cash flows from the second half of the 2012 financial year.

Cowie said Pumpkin Patch has been focusing on its Australasian retail stores over the Christmas period, and tracked "well above last year" though margins were squeezed by higher marketing costs.

The retailer will continue to sell its brand in the UK, and will ramp up its online presence.