Pumpkin Patch has signalled full year earnings may plummet on sluggish demand and price discounting in its main New Zealand and Australian markets.

After tax earnings before reorganisation costs may be between $1 million and $3 million in the year ending July 31, down from the company’s previous guidance that earnings would be unchanged from the $8.5 million a year earlier, the Auckland-based children’s clothing retailer said in a statement. It didn’t detail the likely reorganisation costs. The guidance is subject to any material change to trading conditions, exchange rates or international partners’ delivery schedules across June and July.

The company’s shares dropped 2 per cent to 50 cents, and have declined 56 per cent the past year, the worst performer after fellow clothing retailer, Postie Plus Group.

“Trading conditions in the company’s key Australian and New Zealand retail markets have remained at levels similar to those experienced across the first-half period,” Pumpkin Patch said.

“The trading environment is volatile and continues to be dominated by high levels of promotional activity and lacklustre consumer demand especially in Australia where there is little sign of any meaningful improvement in the near term.”

Pumpkin Patch expects to provide an update on its strategic review of the company’s underperformance and opportunities to boost earnings by the end of June.

“While key long term operational and brand related strategies have not yet been finalised the review to date has identified a range of system and process investment requirements that will generate improvements in underlying earnings and working capital and debt requirements,” the company said.

The stock is rated a ‘hold’ according to the average recommendation of analysts compiled by Reuters.

(BusinessDesk)