Clothing retailer hits difficult sales patch

Pumpkin Patch's profits are forecast to fall
Pumpkin Patch's profits are forecast to fall
Bright retailing results from Australia for Pumpkin Patch are expected to be overshadowed by weak US and UK results, resulting in a forecast of after-tax profit down almost 20%.

Broker ABN Amro Craigs has forecast that retailer Pumpkin Patch, due to report first-half performance on February 20, will be down 19% to $12.6 million, with reduced earnings from the US and UK operations prompted by higher rent, depreciation, interest and tax.

‘‘With the retail environments in both the US and UK difficult, achieving adequate sales levels to cover the essentially fixed operating cost structures at store level must be difficult.

Currencies are also working against them,'' ABN Amro broker Peter McIntyre said.

A challenge for Pumpkin Patch was trying to replicate its New Zealand style of large-format stores in overseas locations, but having to pay high rentals to do so, he said.

ABN's 12-month target price for Pumpkin Patch has been downgraded from $3.13 to $2.53. It is trading around $2.23, and ABN maintains a ‘‘hold'' recommendation on the stock.

Australian earnings before interest and tax (ebit) are expected to be up 23% on the back of a strong retail environment, but US and UK ebit is running behind a 7% reduction forecast by ABN.

‘‘Retailers in both the US and UK are saying the environment is challenging and retail conditions may worsen during the year,'' Mr McIntyre said.

Also expected to impact on profitability, through higher rents and interest rates and depreciation, was the opening of an estimated 31 Pumpkin Patch retail outlets; six in the UK, 11 in Australia and 14 in the US during the past year.

Actual full-year, after-tax profits reported of $28.5 million in 2006 and $27.6m in 2007 are forecast to decline to $26.3m for 2008, ABN research has reported.

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