Shares in Pumpkin Patch have been the best performer on New Zealand’s benchmark index as the children’s clothing retailer turned to a profit in 2013.
Pumpkin Patch shares rose five per cent to $NZ1.05 on Friday after the company said net profit was $NZ5.1 million in the year ended July 31, following a loss of $NZ27.5m the year earlier.
Profit before reorganisation costs was $NZ8.5m, within the company’s $NZ7.5m to $NZ9m forecast range, and down from $NZ10.1m the year earlier.
However, the retracing still leaves shares in Pumpkin Patch 25 per cent lower than at the start of the year, making the stock the second-worst performer on the benchmark, as it attempts to revive earnings.
Chief executive Di Humphries says the benefits will start to be seen later in the 2014 financial year with the full benefits expected later in 2015.
“This is a transition moving into a better structure and we won’t see the benefit of that for another six months but people are buying up now for it,” said Rickey Ward, who holds the stock among the $NZ450m of equities he helps manage at Tyndall Investment Management.
“You are paying ahead for a belief that this new strategy will work. If you believe it, you buy the shares. It’s too early to tell but the early signs are that it looks OK.”
Pumpkin Patch won’t pay a dividend as it focuses on reducing debt. Net bank debt in 2013 fell 12 per cent to $NZ48.3m, while inventory fell 3.9 per cent to $NZ59m.
It will consider paying a dividend at the end of its first half as it reviews its progress and its debt reduction plans.
Pumpkin Patch launched a new range in late July which it expects will better match customer needs. It is in talks with landlords to assess options as leases coming up for renewal and is closing stores which fail to meet expectations.
Group sales fell 13 per cent to $NZ288.7m. Sales from continuing operations, which excludes stores that have been closed, fell four per cent. Online sales rose 18 per cent to $NZ38.7m with the unit benefiting from higher profit margins, the company said.
In Australia, operating earnings fell 18 per cent to $NZ28.5m as sales dropped seven per cent to $NZ193m.
In New Zealand, earnings weakened 3.6 per cent to $NZ9.2m as sales declined 6.9 per cent to $NZ55.1m.
International earnings dipped 28 per cent to $NZ4.5m as sales increased 20 per cent to $NZ40.6m.