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Children's clothing retailer Pumpkin Patch says it can live with the dollar trading at more than 70c against the US dollar - if it doesn't remain so volatile.
The wholesaler-retailer - which has been the sharemarket darling since it was floated at $1.25 a share three years ago - has seen share prices slide this year and last week revealed profit forecasts of $26.5 million to $28 million.
These are lower than estimates by Bloomberg for net profits of $31 million to $32 million. Pumpkin Patch is established in Australia and New Zealand, and is expanding in Britain and the United States.
Executive chairman Greg Muir says growth prospects are still a strong foundation.
He blames the new profit outlook on the high value of the dollar and interest rates.
But he says the biggest problem facing the business is the volatility of the dollar.
"We can learn to live with a dollar at an exchange rate of 74c to the US dollar if we thought it would stay in that region.
"But in the last seven years it has gone from around 38c to 76c" - a change, Muir said, that was much more aggressive than for the Australian dollar.
"If the kiwi is high we can adjust to that. But if it is to change between 75c and 40c it is very hard to run your business," Muir said.
There were limited options in dealing with the fluctuations, and hedging against currency moves was no longer one of them.
"We have used up all the hedging we have had over the past 18 months, and you never want to be fully hedged at the extreme end of a cycle."
Pumpkin Patch has been sliding throughout the year from a high of $4.95 in January.
It dropped to a 12-month low of $3.64 on Monday but bounced back 11c to close at $3.75 yesterday.
Muir insisted that markets in Australasia were still strong, and there were still good growth prospects overseas.
But one analyst who has long been "bearish" about the stock is reticent.
The analyst, who would not be named, says that the lower forecasts came while Pumpkin Patch is embarking on capital-intensive growth in the US.
"It may be that if you were looking at an investment over two years you might be better to look at it over five."
Muir says the high dollar is a plus because it speeds up the company's expansion into the US market.
Pumpkin Patch is also looking to borrow overseas to take advantage of lower interest rates.
He says many exporters feel that Reserve Bank Governor Alan Bollard has too few tools to deal with the macro-economic issues facing the country.
"What is frightening and frustrating is the lack of connection between the factors causing the Government to change [the official cash rate] - an increase in government spending and the housing market - and the effect of a high dollar."
