Pumpkin Patch Ltd., a New Zealand children’s clothing retailer, rose to its highest close in Wellington trading in more than three months after placing its U.K. unit in administration.
The decision follows a review of the loss-making unit that owns 36 stores, Auckland-based Pumpkin Patch said yesterday. The stock rose 4 percent to 78 New Zealand cents at 5 p.m. and has advanced 11 percent since the announcement, reaching its highest since Oct. 11 when it also closed at 78 cents.
Pumpkin Patch has closed stores in the U.S., reviewed its U.K. outlets and increased the focus on wholesale and online sales to arrest a slump in profits as consumer spending slows and costs rise. The stock, which plunged 62 percent last year, is up 22 percent since Jan. 4, the second-best performer on New Zealand’s benchmark NZX 50 index.
“They are closing off some of the areas that have been bleeding, and starting to clean the company up,” said Craig Brown, a senior investment analyst at Auckland-based fund manager OnePath. “Wholesaling of their product is probably the better way to go” in those markets.
Net income before unusual items dropped 51 percent to NZ$12.6 million ($10 million) in the year ended July 31, 2011, the company said in September. After charges, which included writedown of U.K. stores and the costs of firing staff, the company reported a loss.
The U.K. unit had a NZ$1.7 million full-year loss before interest and tax.
‘Doesn’t Make Sense’
“It just doesn’t make sense for us or our shareholders to continue to maintain the existing operation up there,” Chief Executive Officer Neil Cowie said in a statement yesterday. “The economic environment in the United Kingdom and in wider Europe is extremely difficult and we believe it is going to get worse before it gets better. Therefore we expect the U.K. operation would continue to make losses for some time to come.”
While there will be cash costs and a charge against shareholders funds in the six months ending Jan. 31, the elimination of U.K. losses will improve earnings in the second half ending July 31, and in the future, the company said.
“There could well be some upside in earnings” as the company’s new strategy emerges, said Brown. “You’re starting to see announcements from a strategic point of view that are consistent and seem to make sense.”