Pumpkin Patch chairman, Peter Schuyt, says trading conditions remain challenging and the unprofitable children’s clothing retailer is in risk of breaching its banking covenants if Christmas sales disappoint.

The company’s shares on Tuesday dropped 12 per cent to a more than two decade low of NZ30 cents, and have tumbled 62 per cent in 2014.

The Auckland-based company’s annual report, which was tagged by its auditor, shows the retailer renegotiated the terms of its banking arrangements with ANZ Bank New Zealand.

At the company’s annual general meeting in Auckland on Tuesday, Schuyt told shareholders trading conditions were “challenging” going into its peak Christmas season, but it remained in compliance within its banking covenants.

“The outcome of this trading period will materially affect our financial result and the outlook for the remainder of the year,” Schuyt said in speech notes published on the NZX.

“Should trading not deliver to expectations over this period, or worsen over the first half of next year, then there is a risk that the company may breach banking covenants in the latter part of this financial year – noting that the seasonal trading results will become clearer over the next three to four weeks.”

Under the new covenants, Pumpkin Patch has to meet a guaranteeing group coverage ratio, and remain within 20 per cent of forecast earnings before interest, tax, depreciation and amortisation on a rolling 12 month basis.

The retailer also told the bank it doesn’t intend paying a dividend this financial year, and will have to get the lender’s permission if that position changes.

CEO Di Humphries, said that as part of the review the company started earlier in 2014 it was developing a loyalty card to capitalise on its customer data, would close non profit making stores and would streamline its head office functions.

The company reported a loss of $NZ10.2 million ($A9.50 million) in the 12 months ended July 31 from a profit of $NZ5.1m a year earlier.

BusinessDesk