Pumpkin Patch in fight for survival

Troubled childrens’ clothing retailer Pumpkin Patch appears to be fighting for survival with bankruptcy a risk, an analyst says.

Pumpkin Patch yesterday deferred announcing its results for the year to July 31 shortly before they were due to be announced to the NZX, saying it need to ‘‘properly consider and assess the risks identified’’.

The result will be issued on September 30.

Pumpkin Patch shares plunged 38 per cent on news of the delay, recovering slightly by late afternoon to be worth 10 cents, down 4.5c.

Two years ago its shares were trading at $1.08 but the company has struggled under the legacy effects of a failed expansion plan into Britain and the United States.

Craigs Investment Partners head of private wealth research Mark Lister said Pumpkin Patch had got itself into a position where the risk of bankruptcy was real.

‘‘It’s always a risk, that’s a worse case scenario but it does happen,’’ Lister said.

‘‘They’ve got themselves into a tight spot that’s going to be quite difficult to manoeuvre their way out of.’’

Pumpkin Patch was a good performing company before the financial crisis in 2008 but since then its performance had been ‘‘pretty terrible’’, Lister said.

The company’s challenges were the result of difficult retail trading conditions and bad company decisions including a failed international expansion strategy, a revolving door at top management and too much debt.

Whether the company survived could come down to whether there was a buyer willing to take it over or if the bank provided more leniency, Lister said.

Craigs Investment Partners had not considered Pumpkin Patch an investment grade stock for a number of years and any investors holding shares in the company were in an unfortunate position.

‘‘You’re almost at a point where you’ve got to write them off and just hope that something comes out of left field to rescue them and create some sort of rebound, but I think you’d be brave to assume that.’’

The company’s statement yesterday was vague and did not tell investors much, he said.

Pumpkin Patch financial controller Dave Foster said that having become aware of ‘‘certain risks’’, he expected a net loss after adjustments that would be ‘‘above the modest level previously advised’’.

He said an ‘‘unanticipated increase’’ in provisioning would reduce the company’s ‘‘normalised’’ operating profit to between $11.6 million and $11.8m, down from the $14m it previously forecast.

The company was also in ‘‘advanced discussions with its bank’’. It must hit certain earnings targets or be in breach of its lending covenant.

Craig Stent, a retail analyst with Harbour Asset Management, said the situation was not normal, but Pumpkin Patch was obviously still working through its restructuring programme.

‘‘It’s still clearly profitable at [pre-tax earnings] level but under the surface, there’s obviously write-offs of stock which are below that level and they’re still working through store closeouts and that sort of thing,’’ Stent said.

‘‘Clearly it’s a business that has got some challenges and ... retailing is still a tough environment for everybody really.’’

In June Pumpkin Patch announced it had rejected plans to look for a buyer or major investor. Third parties had expressed an interest but the company had decided they did not deliver the best value to shareholders.

The company has had several changes to its board in the last year and in June its chief executive Di Humphries resigned, followed in August by chief financial officer Steve McKay.