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Children's clothing retailer Pumpkin Patch says it is in a much better position to weather the consumer spending slump after reducing debt levels.
The company said it now expected total bank debt at July next year to be between $30 million and $40 million - significantly better than analysts' current forecasts, and the company's earlier $60 million to $70 million guidance.
It said the result had been achieved through the ongoing reduction of inventory, and gains from the falling New Zealand dollar.
"Given the current volatile nature of the global economy, a major focus for us has been the ongoing reduction in bank debt and the strengthening of our balance sheet," said chief executive Maurice Prendergast.
Pumpkin Patch's debt and inventory levels had been a major concern among analysts, particularly given the retail spending downturn in all its markets.
But the falling kiwi has provided salvation, giving the company an approximate $30 million foreign exchange gain, which it has realised to reduce bank debt. At current exchange rates, the company still has an additional $10 million of unrealised gains.
It also expects to reduce inventory levels over the next 18 to 24 months.
Last month it announced that it was making 30 of the 400 staff at its Auckland head office redundant - the largest number of job losses in the company's 18-year-history.
The changes allowed the company to better match its cost base with the more subdued trading environment that it expected to continue through into the 2010 financial year.
"We expect retail conditions across all markets to remain tough for some time so we are taking these steps to strengthen the platform from which we operate," said Prendergast.
The company's 2008 earnings released in September showed a 27.5 per cent drop to $17.1 million - despite a 12.3 per cent increase in operating revenue to $410.4 million. Overall results were hit hard by higher interest charges and quota costs, as well as the difficult US retail environment.
It said yesterday that it was not in a position to provide an earnings guidance for the 2009 financial year, as it had just entered its vital Christmas trading period.
Pumpkin Patch shares closed yesterday at $1.08, up 8c.
