KEY POINTS:
Pumpkin Patch is predicting more tough times ahead but believes it has done everything it can do to prepare for the volatile market.
Shares in the children's clothing retailer rose 12c to close at 95c yesterday despite the company revealing its half-year net profit had dropped by 7
per cent to $9.5 million.
Earnings before interest and tax (ebit) were also down 8.5 per cent to $17.5 million but excluding the company's United States business, ebit was up 9.5 per cent.
But chief executive Maurice Prendergast said the results were credible given the extremely difficult environment for retailers.
"While our profits were slightly down our balance sheet is much stronger than a year ago and even six months ago," he said.
The company had reduced its bank debt by 60 per cent over the six months to $32 million. This was achieved mainly by reshuffling its foreign exchange portfolio, which it uses to hedge against currency changes. Capital expenditure had also been scaled back and costs reduced.
It was looking at further ways to reduce debt.
Pumpkin Patch also made a $15 million real gain from reducing inventories.
But Prendergast said there was no doubt some markets had been particularly difficult.
Australia had proved resilient but New Zealand was a tougher market.
Turnover in Australia was down just 1.4 per cent to $97 million while in New Zealand it was down 4.4 per cent to $31.9 million.
The company's wholesale business had also produced a good result helped by the lower New Zealand dollar which pushed it up 19 per cent to $27.8 million.
Prendergast said there were fairly good bookings for the wholesale business over the next six months but warned it was expecting it to come under pressure due to the longer lead-in times associated with selling into department stores.
But it was the UK and US markets where the retailer was hit hardest.
Prendergast said while the UK business had seen a small loss in New Zealand dollar terms it was facing "the worst retail market we have seen for a long
time".
Turnover was down 5.7 per cent to $32 million.
Prendergast said as expected the US had also been very difficult, with some previously profitable stores now making a loss.
The company was working on cost-cutting measures which included a leaner
supply chain as well as a reduction in staff both in stores and at the head office.
"It is just disappointing that we have chosen to launch at the one time where the market is at its worst for 20 years. The timing is terrible," he said.
Prendergast said the company needed to spend a lot more time in the US assessing the situation before deciding what to do about it and said it was too soon to talk about store closures.
While the market remained volatile he believed the company could not do anything more to prepare itself.
"We think we are well placed to weather what is before us."
Prendergast said it had already laid off 10 per cent of its workforce in the last year and plans were in place for more cost-cutting measures.
Forsyth Barr analyst Guy Hallwright said yesterday's price rise had been more of a relief rally from investors rather than an actual increase.
"A week ago the share price went down from 90 cents to 78. It was
haemorrhaging ahead of the result on the fear that things were going to be
worse."
Hallwright said losses in the UK and US losses weren't as high as had been
expected while at the same time New Zealand and Australia had held up.
