The mood was sombre at Pumpkin Patch's annual meeting yesterday as the embattled children's clothing retailer revealed it would close up to 20 more stores and faced tough questions from investors over its poor financial performance.
The meeting, which is usually held at Ellerslie Racecourse, took place at the company's East Tamaki headquarters this year, partly as a cost-saving measure.
Managing director Luke Bunt, who took the firm's helm in August, told shareholders that the outlook for the rest of the financial year to July 2016 remained "extremely challenging", particularly in New Zealand.
Pumpkin Patch shares, which have slumped by 54 per cent over the past year, closed down 1.5c yesterday at 11.5c.
The retailer, which reported a full-year loss of $9.1 million in September, has been struggling to gain traction in a market beset with margin-sapping discounting on both sides of the Tasman and increasing online competition.
Supply chain challenges, including high levels of inventory, have also affected the retailer's performance.
Bunt said the company faced a difficult, long-term challenge in turning the business around, but he was confident that the brand's "diminished value" could be restored.
He laid out a strategy to investors that included closing 15 to 20 loss-making stores in Australia and New Zealand over the next two to three years, keeping remaining stores in a size range of 220sq m to 260sq m and balancing investment with debt repayments.
The company closed 10 stores in the past financial year, including one in Ireland, reducing the total number of outlets to 176.
Some investors, however, are yet to be convinced by the strategy.
"Each year at the AGM we come and listen to the same, same talk all the time," shareholder Mary Bell said during question time. "How on earth do you think that you lot are going to change and do something for the shareholders?"
Chairman Peter Schuyt said it was a fair question, but the company had already made changes for the better, including putting in place an executive team that could execute a clear strategy and securing an extension of its funding facilities from ANZ bank until December 2017.
"The only way we can give you confidence is by doing it," Schuyt said. "There is no silver bullet for the issues that we face. This will take time and it will take investment."
A proxy holder, who was at the meeting on behalf of a shareholder, asked whether the company would have access to the capital required for its turnaround strategy.
"I'll be ... honest," Bunt responded. "The capital that we expect to generate ... is about half what I need over that three- to four-year period."
Pumpkin Patch hired investment bank Goldman Sachs last year to carry out a capital review of the business, including the possibility of a sale or re-capitalisation, but a suitable suitor was never found.
Speaking to the Business Herald after the meeting, Bunt said the company could raise capital in two years' time.
But the firm would need to get "some runs on the board" first.
The company confirmed previous guidance that normalised earnings before interest, tax, depreciation and amortisation for the current financial year would be significantly lower than the $11.7 million the company reported for the previous year.
- Christopher Adams
What's hurting Pumpkin Patch?
High levels of competition, including from online players.
Diminished brand value among consumers.
High levels of debt and inventory, although it has been making progress in reducing both.
