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.