Children's clothing company Pumpkin Patch says it has
significantly reduced debt levels, leaving it in an even
stronger position to deal with current challenges.
As a result of ongoing inventory reduction strategies and the
realignment of its foreign exchange cover portfolio, the
company was now expecting total bank debt at July 2009 to be
between $30 million and $40 million.
That was significantly better than analyst's current
forecasts and the $60m to $70m expectation previously
provided by the company, chief executive officer Maurice
Prendergast said.
The company expected retail conditions across all markets to
remain tough for some time so it was taking steps to
strengthen the platform from which it operated.
The global economic situation continued to create challenging
retail trading conditions across all of the company's
markets, especially in the United States, he said.
As the company was just entering the all important Christmas
trading period it was not in a position to provide any
earnings guidance for the 2009 financial year.
"Given the current volatile nature of the global economy a
major focus for us has been the ongoing reduction in bank
debt and the strengthening of our balance sheet," Mr
Prendergast said.
"Even though the company already generates strong operating
cash flows we have taken a number of additional steps to
reduce bank debt further.
"We are now in an even stronger position to deal with the
current challenges and to take advantage of opportunities
that typically arise in volatile times."
The company had realigned its foreign exchange cover
portfolio to recognise changing retail market conditions and
the recent volatility in foreign exchange markets, he said.
Movements in the NZ dollar led to significant mark to market
gains on the company's foreign exchange cover.
"The company considered it prudent in the current environment
to realise some of these gains and apply the cash generated
to the reduction of bank debt and to further strengthen its
balance sheet," Mr Prendergast said.
About $30m of mark to market gains had been realised
resulting in a reduction in bank debt. At current exchange
rates an additional $10m of unrealised mark to market gains
remained.
With trading conditions not expected to significantly improve
during the remainder of the financial year, Pumpkin Patch had
carried out a review of all areas of the business, he said.
That had resulted in several overhead reduction initiatives,
the most significant to date being the reduction in salary
and wages costs at store level and at head office in
Auckland.
Those changes were not expected to materially impact earnings
in the current financial year, but the cost base now in place
better matched the more subdued trading environment expected
to last into the 2010 financial year.
Pumpkin Patch shares were up 2c to $1.02 around lunchtime,
down from $2.97 a year ago.
