Pumpkin Patch pulling out of the US

Maurice Prendergast, Pumpkin Patch chief executive. Photo / Natalie Slade

Pumpkin Patch, the children's clothing chain, plans to close its US stores, write-off unprofitable outlets in the UK and cut head office staff, saying there's no sign that 'challenging and volatile' markets will improve any time soon.

The Auckland-based retailer will take an EBIT charge of $9 million to $11 million this year to cover the costs of the changes and the UK impairments, the company said in a statement.

Excluding the charge, net profit this year is forecast at $12 million to $14 million, down from last year's $25.5 million and below the forecast $16 million-to-$18 million estimate it gave in January.

"The removal of the losses from the US and the UK, and the lower overhead structure will drive much improved financial results going forward," chief executive Maurice Prendergast said. The changes "ensure we are operating in a way that better matches the current retail environments we face across our markets."

The stock tumbled 9.1 per cent to $1, the lowest since February 2009. They have shed more than 45 per cent this year.

Pumpkin Patch will progressively shut its remaining 20 stores in America over the next six months, which it says will give it the best opportunity to run down inventory.

Excluding charges for the closures, its US earnings before interest and tax losses this year will be $2.4 million to $2.9 million.

The value of eight of its 17 unprofitable stores in the UK will be written down to zero, recognised with a non-cash charge of $2 million this year, joining nine stores that were fully impaired in a 2009 reorganisation plan. The company has a total 41 outlets in the U.K. and says many are trading at "acceptable" levels.

It will negotiate with landlords to seek rent reductions as leases expire and close stores where it can't reach agreement. It had attempted to renegotiate leases in the US though the "poor state" of American retailing meant proposed lease terms weren't viable.

As a result of the changes, Pumpkin Patch will reorganise its Auckland head office, which will result in job losses. That process has only just begun and the company wasn't able to give details.

Prendergast said the benefit of the changes won't show up until the year ending July 31, 2012, when there will be a positive EBIT impact of $7 million to $9 million and a similar benefit of $$10 million to $12 million in 2013.

The retailer and New Zealand stores are trading profitably and it plans to open new outlets over the next two years.