Patch says 'stellar' year driven by strong retailing

Greg Muir

Tax cut and spending promises dished out by politicians in the run-up to Saturday's election could offer retailers a boost not yet anticipated by the market, Pumpkin Patch executive chairman Greg Muir said yesterday.

The children's clothing retailer reported profits more than tripled to $24.6 million in the June year, from $8.1 million in 2004. But Muir said comments that it expected retail trading conditions in its three main markets to be less buoyant in 2006 did not mean Pumpkin Patch was gloomy about prospects.

"Conditions are subdued - you can't get away from that - but we think the strength of our brand and the activity that we're doing over the next 12 months should stand us in good stead."

The company plans to open 22 new stores in 2006, including eight ordinary stores and two discount outlets in Australia, one store and two outlets in New Zealand, six stores in the UK and three in the US.

Muir said on top of that, both major parties had promised tax relief - Labour for families and National across the board.

"Both of those would be a positive stimulus for retail," he said. "I don't think it has really been thought about."

Forsyth Barr senior analyst Guy Hallwright said the market had a cautious view on consumer spending, but was beginning to think about the implications of election promises. "Clearly, that's going to be an offsetting factor that keeps consumer spending stronger for longer."

Another analyst said it was still too early to quantify the effects given the offset higher fuel prices - while positive they might only be marginal.

While analysts applauded a strong result from Pumpkin Patch for the June year, in line with the consensus forecast and ahead of the company's guidance of $23 million, Pumpkin Patch shares fell 12c to close at $3.18.

"It's just profit-takers moving in after what has been a very, very good run in the share price," said Macquarie Equities investment director Arthur Lim.

Managing director Maurice Prendergast said the "stellar" year had been driven by the strong Australasian retail environment - with Australian tax benefits and family assistance contributing. Group revenue rose 27 per cent to $280.4 million and has now grown at a 17 per cent compound average growth rate since 2001. The company opened 23 stores in the year to June - slightly more than anticipated.

Australian revenue rose 14 per cent to $157.5 million - a 17 per cent gain in Australian dollars - while operating profit rose 27 per cent to $29 million. Prendergast said the company expected to continue opening new stores at the present rate for another couple of years.

In New Zealand, operating profit rose 16 per cent to $10.6 million. Sales of $57.8 million were up 26 per cent.

In the UK, sales growth of 35 per cent (or 43 per cent in local currency terms) to $26.4 million saw losses narrow to $283,000 from $1.3 million - and the unit would have made a profit if the company had not decided to open extra stores in the UK part way through the year.

Pumpkin Patch said it had opened one store in the US and planned three more - two in Los Angeles and one in San Francisco - after booking one-off costs of $1.2 million in researching the market. "We're trying to build up a profile [of the market] rather than come up with some great earnings figure out of the US," said Prendergast.

Revenue from the company's wholesale business leapt 139 per cent to $38.2 million, with operating profit jumping from $2.1 million to $9.6 million.

Prendergast said Pumpkin Patch did not expect the same "spectacular" growth from wholesale in 2006 - but strong growth from the company's main US partner Nordstrom and in the Middle East meant growth would still be good. The company continues to look for new territories - and had looked at Europe, Southern Africa, Asia and elsewhere in North America - but Muir said it was not close to making any decisions.