Share Investor: Digging at Pumpkin Patch's lower profit

Wednesday, February 25, 2009

Digging at Pumpkin Patch's lower profit

Given the dire state of retailing in New Zealand (it is much worse in overseas markets, as you will find as you read on) yesterday's result for Pumpkin Patch Ltd [PPL.NZ] for the 6 months ended 31 January 2009 is a comparatively good one.

To be sure the next six months are going to be far tougher for retail in general and at the big Pumpkin but a $NZ 9.5 million profit compared to last years $10.2 million is well done considering the pressure the company has faced in New Zealand the USA, Britain and Australia.

A focus on costs is clearly important and Pumpkin Patch has managed to deliver a 60% reduction in debt to just over NZ $32 million and a $15 million reduction in inventory without it affecting margins too much.

Good management of capital during these uncertain economic times is crucial to company survival and the Pumpkin are doing the business.

The Australian and New Zealand stores are doing well considering the downturn but the worst has yet to hit this part of the world, so expect a bigger downturn over the following six to eighteen months.

America and The United Kingdom are a different story.

Sales were up strongly in America, mostly because of extra stores and the UK had sales slightly down but losses for these two markets almost tripled over the period bringing down overall net profit for the group by perhaps as much as $3 million.

Pumpkin Patch has fared better than most Northern Hemisphere retailers, especially in the USA, where retailers are going to the wall quicker than you can say sale but unfortunately these markets are going to continue to deteriorate and worst case scenario could take Pumpkin's stores in those markets under.

Management have clearly done the right thing by halting expansion though.

Pumpkin Patch management can pat themselves on the back for a good 6 months but as I have already pointed out it is going to face what is probably the hardest period in its 15 odd years in business.

The company has a good brand, good management and loyal customers and that will help ameliorate the tough economic conditions somewhat but as the failure to indicate any forward forecasting for profit or sales shows uncertainty rules in retailing at present.

Pumpkin Patch shares have risen more than 20% in the last 2 days since the result on higher than average volume traded.