Pumpkin Patch affirms guidance for weaker 2016 earnings, shares drop

See also: No sugar coating at Pumpkin Patch annual meeting

Shares of Pumpkin Patch [NZX: PPL] fell 12% after the children's clothing chain affirmed guidance for weaker earnings in the current financial year, and is driving to restore earnings growth over the next three years.

Managing director Luke Bunt reiterated the company's forecast for earnings before interest, tax, depreciation and amortisation of below the $11.7 million it reported for the year ended July 31, and said positive earnings momentum should be achievable over the next three years. The shares dropped 1.5c to 11.5c.

Mr Bunt said the retailer's immediate priority is to stabilise the business and that shareholders should expect it to establish positive earnings momentum.

"This is achievable over the next three years but we are confirming today that the outlook for the 2016 financial year remains extremely challenging both from a market point of view, particularly in New Zealand and in relation to dealing with a number of legacy issues," he said in speech notes published on the NZX. "As previously indicated, trading ebitda for the 2016 financial year will be significantly below the 2015 financial year."

Pumpkin Patch has failed to find a suitor with an acceptable proposal after hiring Goldman Sachs for a capital review in 2014. At the time it had warned the company was at risk of breaching banking covenants.

Mr Bunt today said the company will "prudently allocate cash generated over the next three years between further debt reduction and the necessary investment in stores and systems technology," having secured funding from its lender ANZ Bank New Zealand. The retailer has extended its facilities with the lender until December 2017.

Mr Bunt's plans include an overhaul of his executive team, which has worked with the board to develop a strategy to address the company's problems.

"The fundamental premise for moving the business forward is that despite diminished equity in the Pumpkin Patch brand, I believe our customer and brand propositions remain relevant and Pumpkin Patch does have a competitive position in Australasia and indeed other parts of the world," he said.

The retailer will continue to close stores and reposition its network to the current average store size of 245 square metres, though that "can only be executed within the limits of our financial capacity and will therefore take some time to achieve," Mr Bunt said.

If Pumpkin Patch can turn around its fortunes, it "will set the platform for growth and recovery of shareholder value over the longer term," Mr Bunt said.

(BusinessDesk)