Showing posts with label pumpkin patch 2008 profit. Show all posts
Showing posts with label pumpkin patch 2008 profit. Show all posts

Friday, September 19, 2008

Pumpkin Patch takes a hit

Kids clothing retailer and manufacturer Pumpkin Patch Ltd [PPL.NZ] profit result out yesterday was a tale of two different stories.

Long-term and short-term stories.

In the long-term Pumpkin Patch will probably do very well but at the moment it is suffering and suffering for a number of reasons, some of them obvious and some of them not so obvious.

The biggest hit on its bottom line is being taken from its stores in the UK and the USA. Both these units are relatively small and have not been established for long.

Although they are growing revenue through increased store numbers, the cost of expansion-they opened 16 US stores last year bringing the total to 34-has hit overall group profit hard and an almost 9 million dollar loss for the year on US stores is a big hit when your profit tips in at just over NZ $17 million.

Not only is the expansion costing money but US retailing is in an even worse state than it is in Australasia, where the bulk of Pumpkin's sales and profit currently come from. The UK division has suffered a similar fate for similar reasons, although losses have been lower than in the US because the brand and its 35 stores in the UK have been established for longer and initial establishment costs have been somewhat ameliorated.

What I like about management's updated growth strategy for the UK and US is that only one store in each country will be opened in 2009 and they will concentrate on establishing the brand further, cutting costs and focusing on margins.

This outlook is the most sensible given current market conditions and the negative retail environment and may have to continue past the end of 2009 because of impacts from the credit crunch.

The break in store growth in these 2 markets will put expansion of the brand into hiatus and delay the economies of scale and logistical capabilities and brand growth that comes with a larger number of stores but the reassessment of growth plans is a decision based on the poor outlook for the retail sector.

Two positive factors in Pumpkin's profit release was the New Zealand and Australian arms of the business.

Australia's 107 stores achieved strong sales, up 11.4% to $198.5m and was the highlight of an otherwise downbeat profit result while New Zealand's 52 stores grew sales 2.0% to $65.6m.

These results were achieved in an Australasian retail market that is experiencing a severe downturn and a recession in New Zealand-management have done well in these two relatively mature growth markets .

The short to medium term for Pumpkin Patch is going to be tough, especially for their UK and US stores but there are some bright spots along the way. A more favourable exchange rate will have a positive impact in 2010 and the removal of quotas for their US stores on Jan 1 2009 will clearly be advantageous to the bottom line.

Long-term Pumpkin Patch has the designers, brand awareness and management to push the company to a major global success story.


Disclosure
I own PPL shares in the Share Investor Portfolio.


Pumpkin Patch @ Share Investor

Pumpkin Patch Ltd move downmarket
Long Term View: Pumpkin Patch Ltd
Pumpkin Patch's North American Downsizing a Prudent move
Digging at Pumpkin's Profit
Long vs Short: Pumpkin Patch Ltd
Pumpkin Patch Buyback shows Confidence in the Future
Pumpkin Patch takes a hit
Pumpkin Patch ripe for the picking
What is Jan Cameron up to?

I'm buying
Why did you buy that Stock? [Pumpkin Patch]
Rod Duke's Pumpkin Patch gets bigger
Buyer of large piece of Pumpkin Patch a mystery
Pumpkin Patch a screaming buy
Broker downgrades of PPL lack long term vision
Pumpkin's expansion comes at a cost
Pumpkin Patch vs Burger Fuel
Pumpkin Patch profits flatten
New Zealand Retailers ring up costs not tills

Discuss PPL @ Share Investor Forum

Download PPL Company Reports

Buy Pumpkin Patch Clothing

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c Share Investor 2008

Wednesday, February 20, 2008

Pumpkin Patch a screaming buy

I'm going to do something I have never done before and recommend a stock to buy. I own shares in Pumpkin Patch Ltd [PPL.NZ] and the share price is at near the IPO price when it listed a few years back. It finished down 9c at NZ$1.83 today after reporting a near 23% fall in 2008 first half profit.

The fundamentals of the share price have changed, putting this company into the realms of an income stock whereas before Mr Market priced it as a growth stock-it had reached the dizzy heights of close to 5 bucks last year.

In my opinion though little fundamental has changed to the business itself during its market re-rating.

While profit was down 22.3% to just over $12 million, revenue was up soundly by 13.5% to $205 million, indicating that sales growth is on track and the appetite for the Pumpkin Patch brand is strong.

Clearly costs and a strong NZ dollar have bitten into profit.

As I have said before though, there is nothing the company can do about the exchange rate and many of the increased costs are those associated with growing a company in new markets. All relevant to the business and no surprise to retailers, people who own businesses and those in the market who don't focus on unnecessary hyperbole related to a short term view of the sharemarket.

I love the brand, the management and believe that their growing pains are just that.

Operations in the USA and UK are having a toughish time of things, but all retailers there are. They are still growing revenue, admittedly from a smallish base and once the one-off establishment costs are kicked touch, things should start to focus more tightly on the all important margins.

Managements forward outlook for the coming year is muted but a focus on increasing profitability at the large numbers of new stores they opened in 2007 is a good idea considering the short-term downturn in the retail sectors of their two biggest growing markets, the USA and UK.

I have no idea if $1.83 is the bottom share price wise, probably not, but it would surely find some resistance at the $1.25 IPO price, where brokers, who were extremely bullish on the company less than 4 years ago(and now seem they wouldn't touch it with 3 barge poles) might decide that is a good price to re purchase the stock they sold when the company hit a speed bump.

I recommend this stock as a very strong buy at these current prices if you have an investment horizon of 5 years or longer.

If it is less than that, forget it.


Disc I own PPL shares in the Share Investor Portfolio.


Pumpkin Patch @ Share Investor

Pumpkin Patch Ltd move downmarket

Long Term View: Pumpkin Patch Ltd
Pumpkin Patch's North American Downsizing a Prudent move
Digging at Pumpkin's Profit
Long vs Short: Pumpkin Patch Ltd
Pumpkin Patch Buyback shows Confidence in the Future
Pumpkin Patch takes a hit
Pumpkin Patch ripe for the picking
What is Jan Cameron up to?
I'm buying

Why did you buy that Stock? [Pumpkin Patch]
Rod Duke's Pumpkin Patch gets bigger
Buyer of large piece of Pumpkin Patch a mystery

Pumpkin Patch a screaming buy
Broker downgrades of PPL lack long term vision
Pumpkin's expansion comes at a cost
Pumpkin Patch vs Burger Fuel
Pumpkin Patch profits flatten
New Zealand Retailers ring up costs not tills

Discuss PPL @ Share Investor Forum



c Share Investor 2008