KEY POINTS:
Turmoil in the American economy is forcing children's clothing retailer Pumpkin Patch to halt its ambitious expansion plans.
Sluggish retailing conditions have seen the company's full-year earnings shrink 27.5 per cent to $17.1 million, despite a 12.3 per cent increase in operating revenue. Overall results were hit hard by higher interest charges and quota costs, as well as the difficult United States retail environment.
Chief executive Maurice Prendergast said the company's performance was holding up well despite what he regarded as "the worst retailing conditions for some time".
In the US, sales were US$20.9 million ($27.3 million), up 50.6 per cent in New Zealand dollar terms, thanks to the opening of 16 new stores.
But Prendergast said its first six stores in the US have all seen a decline in same store sales.
"All our competitors are reporting difficult trading conditions and they're also reporting that it's going to get worse. And I guess that's our feeling as well."
The company was planning to open just one new US store in its 2009 financial year, in Phoenix, and would focus instead on bedding down its existing 34 stores. The US segment was also expected to continue to generate ebit losses for the "foreseeable" future.
"We're still confident that the Pumpkin Patch brand belongs in the US. And we've made this decision to go into the US on a long-term basis."
Of concern as well was the ballooning of inventory holdings, which at July were $35.8 million higher than last year. Chief financial officer Matthew Washington believed it was carrying between $20 and $25 million more stock than ideal, but that trend would be reversed over the next 18 to 24 months.
Total group operating revenue rose 12.3 per cent to $410.4 million on the back of strong sales in the Australian and New Zealand markets. Although the Australian segment began to weaken in the second half, full-year sales still continued to grow strongly, up 11.4 per cent to $198.5 millon. The company also opened five new stores, taking its total across the Ditch to 107.
NZ sales, meanwhile, grew just 2 per cent to $65.6 million. Like Australia, NZ experienced a softening in the latter part of the second half.
The company expected trading conditions to remain difficult throughout next year in all its markets, but expected to gain some upswing from the weaker kiwi. The full benefit, however, would not be seen until 2010.
A final fully imputed dividend of 3.5c per share was declared, down from 4.5c last year. Pumpkin Patch shares closed at $1.45, down 4c, not far off a 52-week low of $1.40.
PUMPKIN PATCH
12 MONTHS TO JULY 31
Operating revenue
2008 - $410.4m
2007 - $365.5m
Ebit
2008 - $35.4m
2007 - $40.7m
Net profit
2008 - $17.1m
2007 - $23.5m
Final dividend
2008 - 3.5cps
2007 - 4.5cps
