Thursday, June 16, 2011

Pumpkin Patch Ltd: Management need to walk

I have been a long suffering Pumpkin Patch Ltd [PPL.NZX] for 5 years and the losses to the portfolio have been significant in terms of this share.

The latest bad news and profit downgrade out yesterday has got me thinking about the future of this share in the Share Investor Portfolio, and the future for the company under present management.

Lets go back over the last 5 years and see how the company has progressed.

Revenue for the patch has gone from $280 million and $24.6 million profit in 2005 to $381 million revenue and $25.5 million profit in 2010. It hasn't been a straightline from 2005 - 201o but patchy progress with big dips in profit between those years.

The entry of the company into the United States in 2005 was done slowly and they tested the market but clearly mistakes were made along the way as they continued to roll out US stores even though they never really fired. In 2009 the company made a decision to abandon 20 or so US stores that were bleeding red ink the most and held onto around 15 that they saw as promising. Over the last 2 years the company even opened an additional 5 stores in that market!

As we know yesterday the pumpkin pulled the plug on the remaining US stores with a cost of some $11 million, which takes the combined cost of entry into the US market of close to $50 million. This excludes lost opportunity costs.

Now I wasn't against expansion into this market and seemed very bullish about the long term prospects for the company back in 2008 but much water, poor decisions, and 50 million bucks has passed under the bridge since then so you can excuse me if my mind has changed somewhat.

The expansion was clearly executed poorly.

Yes, retailing has been suffering globally over the last 3 years, especially in the United States but management should have seen the writing on the wall after 3 years of being in the states in 2009 and pulled the plug back then. It defies belief to think that they were still confident that the company could make a go of it and took a further 2 years to come to yesterdays conclusion.

Management that made decisions to enter the US and stay there while sustaining these big losses are still at the helm and shareholders should be asking whether they should still be there given they have problems in the United Kingdom with stores having been there for the best part of a decade and yet to turn a profit yet management are bullish about being in this market:

"The United Kingdom and the recently opened Ireland stores remain an important part of the Company’s long term growth strategies. The plans being developed for the United Kingdom will enhance overall short term earnings performances and provide a stronger and more sustainable platform on which to implement future growth strategies".

I am picking that UK stores will be closed sometime in the future, they should be, they are losing shareholder money, but management still see fit to continue their failing experiment.

Ironically the only people losing their jobs are some at head office in Auckland and direct store management and workers on the ground in the United States and management have commented on this in yesterdays release:

“We have always prided ourselves of the closeness of our teams that operate across the business. While the decisions we have made today are necessary we cannot overlook the fact that a large number of our team members will be impacted, with many being long serving employees who have contributed to the success of Pumpkin Patch over the years. We will of course be doing everything we can to help them and the rest of the team during this time. We would like to thank all of the team for their continued support and enthusiasm for the brand”.

I would like to see a board replacement and the resignation of key directors including CEO Maurice Prendergast. Their expansion plans have failed dsmally and have cost investors hundreds of millions in lost share value and close to $50 million off the bottomline.

Nothing personal, its just business.

Disc I own PPL shares in the Share Investor Portfolio

Pumpkin Patch @ Share Investor

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c Share Investor 2011

Wednesday, June 15, 2011

NZ Herald backs Sky City Convention Centre to the hilt

At the risk of boring my readers rigid with yet another post about the Sky City Convention Centre, let me be as brief as I can.

The New Zealand Herald
has been highly critical of Sky City Entertainment Group Ltd [SKC.NZX] in the past in its pages but has come out earlier this week and fully backed the company in its proposal to fund a National Convention Centre for the benefit of all New Zealanders:

The strongest argument for Sky City building and fully funding its construction and ongoing costs is encompassed in the following key paragraphs:

"But if SkyCity can make a convention centre pay without need of a public subsidy, its case is better. It means the public will not be taking on the risk that the centre will not attract sufficient conferences on the scale required - a risk all the greater when it is operated by a public body with public finance to fall back on.

SkyCity will carry the risk, giving it every incentive to compete keenly with other international conference destinations. Auckland's interest will be carried by a company that already runs a smaller convention centre with its casino. It is, as a Labour Party spokesman complains, a "multinational". It knows the business and must have confidence that Auckland can compete.

It is not clear whether the company's request for additional casino capacity is vital to its convention plans. It may be that the only thing the company needs from the Government is an assurance that it will not fund a competing facility. No business can compete with a bottomless public purse.

SkyCity has proven its competence and its commitment to Auckland. This investment offers more jobs, more visitors, more business for the city at no public outlay. In the end, that must recommend it." NZ Herald, 14 June 2011

The issues over negotiating details around gaming law changes are a moot point and sides taken by various members of the public must not cloud the ultimate aim of the convention centre and that is to provide a stimulas to the economy at a time when the country is suffering the worst recession since the Great Depression at no risk to the local or state governments.

That clearly must be applauded whatever side you come down on in terms of politics and attitudes to gaming.

The Convention centre is also fully backed by Auckland Mayor Len Brown, Prime Minister John Key, and has only small opposition from the left of politics with The Dominion Post encapsulating the minority of the opposition in this editorial.


Disc: I own SKC shares in the Share Investor Portfolio


Sky City Convention Centre @ Share Investor

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Discuss SKC @ Share Investor Forum
Download SKC Company Reports

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Buy new: $14.95 / Used from: $6.99
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c Share Investor 2011

Tuesday, June 14, 2011

VIDEO - Sky City Entertainment Group : Parliamentary Question Related to Convention Centre




The Green Party asked the following question in Parliament this afternoon

Kevin Hague: Does he stand by his statement on Breakfast yesterday that “we’re constantly changing aquaculture laws, or fishing laws, or whatever it might be. I mean in the case of Sky City, that particular licence is site specific”?

In attempting to a label the Government corrupt by opening up the possibility of a discussion over relaxing gaming laws in order for Sky City Entertainment Group Ltd [SKC.NZX]to fund and build a National Convention Centre Kevin Hague and the Greens show their socialist and communistic roots.

The answers given by Stephan Joyce included increased economic activity because of a convention centre, thousands of jobs and redevelopment of a barren and disused part of the Auckland Central CBD.

Employing thousands of people at the lower end of the wage scale seems to clash with the green mantra of providing jobs and incomes to the "vulnerable" in our society.

I guess this is easy to do if you are just another wealthy green party voter.


Disc
: I own SKC shares in the Share Investor Portfolio


Sky City Convention Centre @ Share Investor

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The Intelligent Investor: The Definitive Book on Value Investing. A    Book of Practical Counsel (Revised Edition)
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Buy new: $14.95 / Used from: $6.99
Usually ships in 24 hours

Fishpond


c Share Investor 2011

Monday, June 13, 2011

Jan Cameron makes her move on Kathmandu

Jan Cameron has made her first move, after a restraint of trade was lifted on May 2, to compete directly with the company she sold in 2006 Kathmandu Ltd [KMD.NZX].

It has been reported that she has invested an initial 20 million into kiwi outdoor clothing chain, Macpac to go head to head with KMD in Australasia and presumably in other markets KMD trades in. She is one smart cookie whose business acumen in retailing should never be underestimated by her competitors and she has strong contacts in retail and retail suppliers in this part of the world and elsewhere and her expertise in the outdoor retail sector cannot be underestimated.



Cameron has several individuals within Macpac that are former associates at Kathmandu and they have an aggressive expansion plan in place to take on KMD.



While Macpac currently has fewer branded stores than Kathmandu's 100, with only 29 in Australasia, Macpac's products are stocked in over 100 retail outlets worldwide so have a broader brand recognition if a global business is what management are looking at in the long term.

Kathmandu as a strong in your face brand have the outdoor sector mostly to themselves in New Zealand and Cameron's expertise and contacts in retail will be a formidable challenge to Kathmandu and its impressive retail margins that they have placed their whole business model and recent IPO on.

Management at KMD will be seriously worried about this and as Macpac gets a larger retail footprint across this part of the world revenue and profits will be cut.

Make no mistake it will be cutthroat between these two brands and the winner will be the consumer in the end.

It remains to be seen which retailer will come off the big winner but my money is on Jan.


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Discuss Kathmandu @ Share Investor Forum



c Share Investor 2011