Pumpkin Patch announces FY15 result

Children’s clothing company, Pumpkin Patch has today reported a $9.1 million after tax loss for the year to July 31 2015, compared to an $11.5 million after tax loss for FY14 (including prior period adjustments).

The FY15 loss is significantly higher than previous guidance of a modest loss due to a number of factors, mainly additional impairment provisions against under-performing stores and working capital risks as signalled to the market on Friday.

Normalised EBITDA (before reorganisation costs and prior period adjustments) for the 2015 financial year is $11.7 million, in line with latest guidance. This compares to normalised EBITDA for FY14 of $17.0 million. Reduced year on year profitablility reflects mainly a strong Kiwi dollar, impacting the translation of Australian dollar sales and profits. Also contributing was the loss of key wholesale customers in the northern hemisphere and lower online sales in the United Kingdom and the United States where Pumpkin Patch no longer has any bricks and mortar retail presence.

Total Group Revenue was $238.5million, down 1.0% on the 53 week trading period last year. On a comparible 52 week basis, same-store sales were up 0.5% in New Zealand and up 6.4% in Australia (in Australian dollar terms). Online sales in Australia were also up, 7.5% on last year in Australian dollar terms, but flat in New Zealand.

Sales in both the wholesale and online channels outside of Australasia were significantly down on last year. Rest of world sales were down 7.5% compared to the previous year.

Pumpkin Patch chairman, Peter Schuyt said, "our core retail businesses in New Zealand and Australia have performed well in a highly competitive and promotionally driven market, but the strengthening of the New Zealand dollar had a significant negative effect on the translation of Australian dollar sales and profits. This had a material impact on overall profitability for the year, partially offset by improved buying terms associated with a higher US dollar cross rate."

Schuyt said that also contributing to lower performance compared to last year was the loss of key northern hemisphere wholesale accounts.

Mr Schuyt addressed recent speculation in media reports regarding the financial stability of the company saying that Pumpkin Patch had made real progress in the crucial areas of improving stock efficiency and reducing debt. Net bank debt reduced by approximately $20 million in the past year in real terms with operating cash inflows of $29.7 million being generated in the year compared to an operating cash outflow of $8.0 million last year.

In Friday’s market update the company also signalled that it was in advanced discussions with its bank about the scheduled extension of banking facilities. Peter Schuyt said discussions with the company’s bank had been successfully concluded with facilities in place through to the end of 2017, on terms and conditions appropriate to the circumstances of the company.

Mr Schuyt confirmed that chief executive Di Humphries would step down next month and Luke Bunt, who joined the Pumpkin Patch board last October and was appointed managing director in August, has transitioned into the role.

Luke Bunt said that his priorities since joining the board had been on ensuring the company’s debt reduction objectives were met and on refinancing the business.

Since taking on executive responsibilities, Mr Bunt had also focussed on building the executive capability necessary to address the operational issues faced by the company and on completing a detailed review of competitive positioning and performance. He said that while good progress has been made in these areas, there was still a lot of work to be done.

Bunt said that while the operational issues are challenging and complex, what the competitive review has confirmed so far, evidenced by market research, is the strong loyalty that the brand retains among its customers. "The review has underscored that Pumpkin Patch’s focus must come back to its customers, the style of clothes they want to buy for their kids, the experience they want to enjoy in our stores and how they want to communicate and engage with us."

"To achieve this, investment will be required in product design, all our channels to market and on various customer communication mediums," he said.

Looking ahead to FY16, the company reiterated previous guidance that currency headwinds and the flow on from the loss of wholesale business and challenges in some on-line markets would result in normalised EBITDA for the year being considerably below FY15.

The company did not declare a dividend for the year ended 31 July 2015.