Pumpkin Patch shares fell 12 per cent after the children’s clothing chain confirmed it would close 20 more stores and affirmed guidance for weaker earnings in the current financial year in the midst of a strategy to restore earnings growth over the next three years.
The company closed 10 stores during its last financial year, including one in Ireland, bringing its total number of stores to 176.
The company previously reported a $10.1 million after-tax loss for the year to July 31 on 16 per cent drop in sales to $240.9 million.
The 2014 financial year’s commencement was marred by the failure of two of its suppliers and the flooding of a key region in China. A surge in the kiwi also influenced profit margins, resulting in lower overseas earnings, a climate exacerbated by fierce competition in the sector and wary consumers.
MD, Luke Bunt, reiterated the company’s forecast for earnings before interest, tax, depreciation and amortisation of below the $11.7 million it reported for the year ended July 31, and said positive earnings momentum should be achievable over the next three years. The shares dropped 1.5 cents to 11.5 cents.
Bunt said the retailer’s immediate priority was to stabilise the business and that shareholders should expect it to establish positive earnings’ momentum.
“This is achievable over the next three years, but we are confirming that the outlook for the 2016 financial year remains extremely challenging both from a market point of view, particularly in NZ and in relation to dealing with a number of legacy issues,” said Bunt in speech notes published on the NZX. “As previously indicated, trading ebitda for FY16 will be significantly below FY15.”
CEO, Di Humphries, said it would get a better understanding of sales and margins on its new summer range after the Christmas trading period, at which time the market would be updated.
Pumpkin Patch failed to find a suitor with an acceptable proposal after hiring Goldman Sachs for a capital review in 2014. At the time it had warned the company was at risk of breaching banking covenants.
Bunt said the company will “prudently allocate cash generated over the next three years between further debt reduction and the necessary investment in stores and systems technology”, having secured funding from its lender ANZ Bank NZ. The retailer has extended its facilities with the lender until December 2017.
Bunt’s plans include an overhaul of his executive team, which has worked with the board to develop a strategy to address the company’s problems.
“The fundamental premise for moving the business forward is that despite diminished equity in the Pumpkin Patch brand, I believe our customer and brand propositions remain relevant and Pumpkin Patch does have a competitive position in Australasia and indeed other parts of the world,” he said.
The retailer, in the face of closing stores, will reposition its network to the current average store size of 245 sqm, though that “can only be executed within the limits of our financial capacity and will therefore take some time to achieve,” Bunt said.
The retailer has also mobilised to ameliorate forecasting, product costs, speed to market, its range and pricing.
A greater focus will be allocated to omnichannel as the retailer has realised that if it does not adapt to online trends, it will not remain abreast of the competition.
If Pumpkin Patch can turn around its fortunes, it “will set the platform for growth and recovery of shareholder value over the longer term,” said Bunt.
At its annual meeting at the company’s East Tamaki headquarters, shareholders bemoaned the fact that they were hearing the same old thing again in the face of having received nothing from the retailer.
Pumpkin Patch shares have fallen more than 60 per cent in the past year.
This story first appeared on Inside Retail’s sister site, Inside Retail New Zealand.
