The mood at today's Pumpkin Patch Ltd [PPL.NZX] AGM seemed a little dire.
Talk of extra expenses due to expansion seemed the main theme of the day and a weaker US dollar and stronger Kiwi having a big impact on profit repatriated back to New Zealand.
The "Patch" is expecting earnings growth to come from local markets, increased interest charges, store opening costs and market development costs in the USA and UK continue to have an impact the on the company's results short to medium term.
Like Burger Fuel Worldwide Ltd [BFW.NZX] the initial costs of establishing a sustainable global brand are a necessary evil and in my opinion will increase before they start to decline. If you are invested in Pumpkin Patch to make a buck short term unfortunately the big bucks for this investment are more likely to be realised long term.
A 3,200 ft² shop at 77 Clarence Street, Kingston, UK
leased to Pumpkin Patch Ltd on a new 10 year lease
at a headline rental of £333,330 p.a.x.
If you unhappy with that as an investor then clearly you should have your money elsewhere.
Carefully building up a profitable Australasian business before moving to new overseas markets has put the company in a great position to use cash flow to allow them to borrow to grow their new business.
Michael Hill International Ltd [MHI.NZX] has used the same strategy in building their brand in Canada and like PPL they are still running at a loss there.
Store numbers are now at 200 and management look to add around 20 new stores this financial year, down from last years 35 stores, so associated costs should be ameliorated.
The only real threat seems to be from the currency swap from the strong Kiwi dollar if it continues long term but it is something management will have to deal with if it stays strong, perhaps make it a side issue and not give it the significance they seem to every reporting season, simply because there is nothing they can do about it.
Short to medium term though shareholders like me could be in for a bumpy ride.
The market punished the gloomy outlook by cutting the share price by 16c to NZ$2.72 on good volume.
Disc I own PPL shares in the Share Investor Portfolio
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