Pumpkin Patch enjoys a bountiful harvest

The children's clothing company that has developed a reputation for under-promising and over-delivering looks set to do it again.

Despite reporting its half-year profit had surged 129 per cent to hit $12.5 million, Pumpkin Patch did not budge from a forecast it would make at least $23 million in the year to July. But the strong result cemented market expectations that they were ahead of the official prediction.

"It's hard to see how they could not beat $23 million," said Macquarie Equities analyst Warren Doak. He said the half-year figures showed sales momentum was strong with no sign of margin erosion.

Analysts said even before yesterday's results the consensus forecast for the year was already about $24 million, but some were anticipating upgrades.

Pumpkin Patch opened 11 new stores over the six months ended January which would be fully operational during the second half of the financial year. It plans another six in Australia in the second half and two in Britain.

"It's not unrealistic to expect $23 million to be exceeded - I'd be surprised if it wasn't," said Tyndall Investments fund manager Rickey Ward. Pumpkin Patch shares responded to the upbeat mood, closing up 14c at a new high of $3.22.

Analysts said there was little to cause concern in the detail of the results. Sales were up 39 per cent to $139 million and, as expected, the company announced a maiden dividend of 3.75c a share, in line with its policy of paying out 50 per cent of after-tax profit.

Stores world-wide performed well. In NZ, sales were up 43 per cent to $29.3 million, boosted by three new stores and the 14 HBKGirl stores Pumpkin Patch bought in May. Even without the HBK Girl stores, which will have been rebranded to Pumpkin Patch's brand Urban Angel Girl by the end of the year, sales were up 27 per cent on 2004.

In Australia, where the company has 68 stores, sales rose 28 per cent to $80.2 million. Pumpkin Patch managing director Maurice Prendergast said the company anticipated growth over the next few years, comparing Pumpkin Patch to retailer Michael Hill, which has 100 stores in Australia.

"They're in similar locations to us ... Australia and New Zealand are going to remain our bread and butter for some time to come."

In Britain, earnings were in the black for the first time, despite the weak overall retail environment. "We had predicted a small loss at the time of the IPO (initial public offering) so we're very pleased about that," executive chairman Greg Muir said.

The company plans to open six to eight new stores in Britain over the next year.

Sales at the wholesale division, which sells Pumpkin Patch branded clothes through other chains internationally, more than doubled to $16 million.

Muir said Saudi Arabia in particular showed the company had something which could gain good international acceptance.

Although it was difficult to find a cloud on the horizon, Doak said the company was right to adopt a cautious approach because rapid growth could put unexpected pressure on a company's systems.

"Greg Muir has been through it with The Warehouse. Even though he can't see the judder bars he knows it happens."

Another analyst said there was always a risk the competition could "imitate them a bit closer, a bit quicker and a bit cheaper".

Management were confident that even if a retail downturn eventuated they could keep their strong profit margins by resisting the urge to discount.

"Discounting is like a drug - same store sales will kill you 12 months on," said Muir.