Published 30 June 2009
Pumpkin Patch Ltd said today it would close 20 US stores.
The Auckland-based retailer of children’s clothes said in February it was reviewing its US operation with the aim of developing strategies that better met the difficult economic environment in that market. Chief executive Maurice Prendergast said the imposition of import quotas and the prolonged financial crisis in the US “has created significant headwinds for the profitability of the United States operation” and it would close 20 of its 35 US stores over the next 2 months – mostly the newest stores, which hadn’t yet gained traction. Most of those that stay open will be along the west coast. Mr Prendergast said Pumpkin Patch had renegotiated lease terms for 11of the remaining 15 stores at rental levels that better reflected current market conditions. Discussions on the remaining 4 stores are ongoing. Mr Prendergast said: “The plan we have outlined today allows us to build from a lower base in a much more structured way and enables the US company to go into the future with far more financial certainty. “Assuming no further deterioration in trading levels, the company expects the reorganised US store network to generate a close-to-breakeven earnings result at store level. Combined with a reduction in US head office costs, the segment is expected to generate a loss in the 2010 financial year in the region of $NZ3 million versus the analysts’ average forecasts of a $13 million loss. This will lead to a significant improvement in consolidated Pumpkin Patch Group earnings & cashflow results.” Mr Prendergrast said the company would recognise all reorganisation costs in the 2009 financial year. He expected non-cash costs of $30-34 million and cash costs of $6-8 million.
He said the reorganisation plan didn’t impact on the remaining 220 company-owned stores or any other trading segment, including the US wholesale company, because of the corporate structures employed in the US.
Other measures Pumpkin Patch has taken this year include cutting its bank debt by about 60%, significantly lowering inventory and realigning overheads. The company previously forecast year-end bank debt in a range of $30-40 million and now expected it to be at the lower end of that range.
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Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.