Pumpkin Patch has slumped to an annual loss and signalled earnings are unlikely to improve for another year.

The Auckland-based children’s clothing chain made a loss of $NZ10.2 million in the 12 months ended July 31, from a profit of $NZ5.1 a year earlier.

Pumpkin Patch shares, which have fallen 57 per cent the past year, were unchanged at 43 cents after the company said annual profit excluding reorganisation costs was $NZ1.2 million, in line with its forecast of $NZ1 million to $NZ2 million.

Pumpkin Patch, which suffered a series of setbacks last year including disruptions to its supply chain as increased rivalry drove down prices, has embarked on a two year “transformation process” in an attempt to boost earnings.

The company failed to pay a dividend for a third year as it focuses on reducing debt.

“The full impact of the strategic transformation process will not start to be seen until early FY16,” Pumpkin Patch said in a statement.

“The company is expecting lower inventory levels and a continued disciplined approach to capital expenditure and other major spend items to be reflected in lower bank debt in the latter part of FY15.”

Net bank debt rose 34 per cent to $NZ64.9 million while inventory increased 23 per cent to $NZ72.7 million, which the company said was to ensure timely delivery of new season stock to ensure a smooth start to the 2015 financial year, after the business was hurt by the late delivery of new season stock in the previous year.

Group sales fell 17 per cent to $NZ240.9 million. Overseas sales were impacted by a higher New Zealand dollar, although the higher exchange rate reduced the import costs for the NZ business.

The Australian and NZ markets were impacted by price discounting amid soft retail conditions, the company said.

In Australia, which accounts for about two thirds of sales, earnings before interest and tax fell 34 per cent to $NZ18.9 million as sales slid 1.7 per cent to $NZ55.6 million.

In New Zealand, Ebit dropped 8.4 per cent to $NZ8.4 million as sales increased 25 per cent to $NZ27.8 million.

BusinessDesk