Bank throws Pumpkin Patch a lifeline

See also: Pumpkin Patch 'in good heart'

Troubled childrenswear retailer Pumpkin Patch [NZX: PPL] has given itself some breathing space after reaching a deal to extend borrowing facilities with its banker ANZ.

Reporting its results for the year to July 31 this morning, the company said it had signed a new banking agreement yesterday to provide a stepped repayment plan out to the end of 2017.

Without a deal the company’s ability to continue as a going concern was in doubt.  

During the year Pumpkin Patch reduced its net debt from $65 million to $39m.

Managing director Luke Bunt said he had focused on cutting debt and arranging financing since joining the board last October.

Mr Bunt, who took over as managing director from former chief executive Di Humphries in August, said a market review had confirmed the brand had strong customer loyalty.

“The review has underscored that Pumpkin Patch’s focus must come back to its customers, the style of clothes they want to buy for their kids, the experience they want to enjoy in our stores and how they want to communicate and engage with us,” he said.

The company required investment in product design, channels to market and customer communications to achieve that, he said.

The overall result for the year was a loss of $9.1m, a slight improvement on the previous year’s loss of $11.5m.

Revenue was down 1% at $238.5m.

This year’s loss was worse than forecast because of impairment provisions on underperforming stores and “working capital risks”.

“Also contributing was the loss of key wholesale customers in the northern hemisphere and lower online sales in the United Kingdom and the United States where Pumpkin Patch no longer has any bricks and mortar retail presence,” the company said.

Last week Pumpkin Patch said it had discovered “certain risks” while finalising its accounts which led to an unanticipated increase in provisioning against the carrying value of working capital.

This morning the company said the problem had created a “technical breach” of its banking covenants requiring a waiver from its bank.

Prior year accounts also required restatement after a mistake was found in foreign exchange inventory adjustments “which became evident in light of the substantially reduced levels of inventory held at July 2015 when compared to levels held in prior years."

The restatement took $7m and $8.4 off reported inventory values in 2013 and 2014 respectively.

Core business performing well
Despite the difficulties, Pumpkin Patch chairman Peter Schuyt said: “Our core retail businesses in New Zealand and Australia have performed well in a highly competitive and promotionally driven market, but the strengthening of the New Zealand dollar had a significant negative effect on the translation of Australian dollar sales and profits.”

Operating cashflow for the year was $29.7m, helping to fund debt repayment of $25m.

The company said normalised earnings before interest, tax, depreciation and amortisation were $11.7m, down from $17m a year earlier.

Looking ahead, it said “currency headwinds and the flow on from the loss of wholesale business and challenges in some on-line markets would result in normalised EBITDA for the year being considerably below FY15."

* Disclosure: Tim Hunter owns shares in Pumpkin Patch

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