Pumpkin Patch to close 20 US stores

Children's clothing company Pumpkin Patch is to close 20 of its 35 stores in the United States.

The US segment was now expected to make a loss in the 2010 financial year of around $3 million, as against analysts' average forecasts of a $13 million loss, chief executive Maurice Prendergast said today.

That would lead to a significant improvement in consolidated Pumpkin Patch Group earnings and cash flow results.

All reorganisation costs would be fully recognised in the 2009 financial year.

That would include non-cash impairment charges on all US store fixed assets and where required adjustment to the valuation of inventory.

Other reorganisation costs such as employee commitments would also be provided for.

Non-cash costs were expected to be between $30m and $34m, with cash costs expected to be between $6m and $8m.

The stores to close in the next two months were generally the more recently opened stores that had struggled to gain traction in the difficult retail environment in the market since late 2007, Prendergast said.

The remaining stores would be based primarily along the US west coast.

Lease terms for 11 of the remaining stores had been renegotiated at rent levels that better reflected current market conditions. Discussions on the remaining four stores were continuing.

Pumpkin Patch announced in February it was undertaking a review of its US stores.

While there had been early success with the initial US store openings, the imposition of import quotas and the prolonged financial crisis in the US had created significant headwinds for the profitability of the US operation, Prendergast said.

The long term future of the Pumpkin Patch brand in the US required changes that provided better financial outcomes in the near term, creating a more sound foundation on which it could develop its US strategy in the longer term.

"The plan we have outlined today allows us to build from a lower base in a much more structured way and enables the United States company to go into the future with far more financial certainty," said Prendergast.

Assuming no further deterioration in trading levels, the company expected the reorganised US store network to generate a close to break-even earnings result at store level, while US head office costs would be reduced.

Due to the corporate structure in the US, the reorganisation plan did not affect the remaining 220 company-owned stores or any other trading segment including the US wholesale company.

The plan utilised legal protections afforded to US corporate bodies that reorganised their business operations and therefore did not have an impact on the New Zealand parent company.

Prendergast said the company's year end bank debt was now expected to be at the lower end of the $30m to $40m range previously forecast.

Inventory levels had been rebalanced much quicker than originally anticipated, while trading in other retail markets continued to be reasonably robust considering the generally poor retail conditions.

Pumpkin Patch shares closed at $1.35 yesterday, having ranged between $1.73 and 78c in the past year.

- NZPA