Growing Pumpkin takes over the garden

By PETER GRIFFIN

Children's clothing retailer Pumpkin Patch is gearing up for further global expansion but has warned shareholders not to expect instant profits from its new stores.

Chairman Greg Muir told shareholders at Pumpkin Patch's annual meeting in Auckland yesterday that the newly listed company was unlikely to grow in a "linear fashion" - in other words, don't equate more stores with increased short-term returns.

"Our experience suggests that it takes two to three years to gain traction in new markets and positive earnings flow can take even longer," said Muir.

"As our company is still relatively small we will not necessarily be able to manage the flow of growth to ensue a linear growth in earnings."

Pumpkin Patch has ambitious expansion plans in all of the markets it already operates in - New Zealand, Australia, the Middle East, Britain, Ireland and the United States.

It opened six new stores locally this year and 10 in Australia.

Three new stores are planned for New Zealand next year, five concept stores for Ireland and 10 for the US.

In the Middle East, where it already has six stores managed by Bahrain-based partner Jawad Group, the company plans another six or seven.

But its emphasis will remain on Australia, where Pumpkin Patch will open another 10 stores next year.

"Australia dominates in revenue and earnings," said chief executive Maurice Prendergast.

He expected Pumpkin Patch's "bread and butter" business in New Zealand and Australia to absorb the impact of global expansion as the new stores established themselves.

"We've been in the UK now for three or four years and haven't turned a profit. These things take time," said Prendergast.

"You don't need the same return from the overseas markets as you do in your home market."

Many of the new stores will be funded by Pumpkin Patch's partners and exist within department stores, lessening the investment needed. Pumpkin Patch has not disclosed how much it is spending on its global expansion.

Prendergast said capital expenditure would be "below or in line with depreciation".

Since listing on the share market in June, Pumpkin Patch has outdone its prospectus forecasts. Net profit after tax was $15.5 million, ahead of the $11.4 million forecast.

Those taking shares in the initial public offering have made an 84 per cent return on their investment. The company has just $4.7 million in debt.

While the key Christmas season will determine Pumpkin Patch's ful- year earnings and the size of its maiden dividend, management thinks it can better the $15.3 million forecast.

"We're feeling pretty confident that Christmas will be good," said Prendergast.

Major Australian retailer Coles Myer has indicated it expects a strong Christmas selling season and about 60 per cent of Pumpkin Patch's business is done in Australia.

Shareholders passed a resolution to award 290,000 share options each to Muir, Prendergast and design director Chrissy Conyngham. The exercise price will be calculated next year.

Only 8 per cent of Pumpkin Patch's clothing is made locally but all the designs are New Zealand creations. "Producing 1500 styles twice a year is an incredible effort," said Muir.

Spreading the patch

Pumpkin Patch will open more than 30 stores with partners next year in the United States, Australia, New Zealand, the Middle East and Ireland.

Apparel sales were strong in the year to July, with sales up 8.1 per cent in New Zealand and 15 per cent in Australia.

Management expects to better its full-year profit forecast of $15.3 million.

IPO investors have seen their shares appreciate 84 per cent.