Pumpkin Patch half year results:
Revenue - $211m, up 3pc
Profit - $9.5m, down 7pc
Dividend - 3 cents per share (4 cps in 2007)
KEY POINTS:
Children's clothing retailer Pumpkin Patch reported a 7 per cent fall in half-year net profit to $9.5 million, saying the strength of its brand lessened the impact of difficult retail environments in all markets.
Operating revenue for the six-month period to the end of January rose 3 per cent to $211 million.
Chief executive Maurice Prendergast and chairman Greg Muir said today that while weaker trading conditions across all markets led to increased promotional activity, Pumpkin Patch held market share.
During the past six months Pumpkin Patch faced unprecedented volatility in all its markets, they said.
"There appears to be no sign of this improving in the near term and Pumpkin Patch continues to adjust strategies to meet the daily challenges faced."
The United States was a disappointing drag on earnings, and excluding that market earnings before interest and tax were 9.5 per cent up on last year.
US retail sales were up 43.9 per cent to $21.7 million, driven mostly by new store growth, Prendergast and Muir said.
At the same time, retail industry rationalisation increased dramatically with numerous retail chains either closing stores or ceasing operations fully amid economic chaos in the US.
US earnings before interest and tax (ebit) was significantly affected with a loss of $6.2 million, compared to a $2.5 millino loss a year earlier.
Overhead reduction measures were put in place but were insufficient to counter the impact of lower sales.
In addition, the lower exchange rate of the New Zealand dollar against the greenback, affected the translation of the loss into New Zealand dollars.
During the latest half-year one new store opened in the US, taking total stores to 35.
In Australia, retail sales were only marginally down on a year earlier. Segment ebit of $19.5 million, compared to $20.6 millino a year earlier, reflected increased promotion in a drive to build market share, Pumpkin Patch said.
During the period three new stores opened in Australia, taking total stores to 110.
New Zealand retail sales fell 4.4 per cent, with ebit down to $6.1 millino from $6.9 millino a year earlier.
Total ebit margins in the NZ retail segment were affected by sales mix changes resulting from the opening since January 2008 of four outlet stores which traded at lower ebit margins than full priced Pumpkin Patch stores.
Three new stores have opened year-to-date in this country, taking numbers to 54.
Turnover in the Wholesale and Direct segments rose 19 per cent, with ebit up 28.5 per cent to $7.8 million.
"Although some margin pressure was seen from overseas customers facing difficult trading conditions in their home markets the more favourable exchange rates helped offset the impact of this," the company said.
In Britain, retail sales were down 5.6 per cent, with an ebit loss for the period of $1.1 million, compared to a $100,000 profit a year earlier.
Of the 33 British stores open longer than 12 months, 20 had positive ebit contributions at store level. The one new store opened during the period took the total number to 36.
Pumpkin Patch said its bank debt has reduced significantly, by $49 millino or 60 per cent to $32.4 million. That was achieved through reduced stock holdings, restructuring of the company's foreign exchange portfolio in November, and continued strong cash flows from operations.
After adjusting for the impact of lower exchange rates on overseas inventory, underlying inventory levels were down by about $15 million since July.
An interim dividend of 3 cents per share is being paid, compared to 4 cents per share a year earlier. It will be fully imputed for New Zealand shareholders and fully franked for Australian shareholders.
Volatility in all markets and long inventory lead times caused problems when forecasting for a global business, the company said.
In Australia, it was well-positioned to deal with difficult trading conditions, and in this country the brand strength was expected to partially insulate the company from the worst effects of any significant deterioration in retail activity.
In Britain, improvements to the supply chain and a lower overhead base now in place would allow the operations to be better managed while the market remained so volatile.
While market share may grow the seasonal nature of sales and earnings would increase losses in the short-term, Pumpkin Patch said.
Volatile conditions in the US created high levels of unpredictability as to possible near term trading results.
Due to the seasonality of trading in the US market losses would increase in the second half.
Pumpkin Patch shares were up 6 cents, or 7.2 per cent, to 89 cents, about an hour after the sharemarket opened. During the past year the price ranged between 78 cents and $1.95.
- NZPA
