Pumpkin Patch is pulling out of managing its UK retail operations and appointing administrators to take over the running of the 36 lossmaking stores.
Neil Cowie, Pumpkin Patch Group chief executive, said stemming the losses from its standalone UK-registered subsidiary company would lift total group operating earnings and cash flow from the second half of the 2012 financial year and into the future.
The company expects year-end bank debt will be between $40m and $50m.
Cowie said day-to-day control would be given to administrators, which could result in some or all of the UK stores being shut down.
The decision does not materially affect any other company in the group, which runs 185 retail stores across Australasia, 20 international wholesale markets, and online businesses operating in five international markets. This could cost up to $5 million in cash, with non-cash costs expected to be between $25 million and $27 million.
Cowie said the return on investment from the UK retail operation had not been acceptable.
"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 UK operation would continue to make losses for some time to come. While the decision is a hard one it is a decision we had to make as it just doesn’t make sense for us or our shareholders to continue to maintain the existing operation up there.”
He was confident there was a place in the UK market for Pumpkin Patch brands, however, based on its growing online operation.
He said in Australasia, retail sales over Christmas improved on last year's numbers, and the wholesale team was in discussions on two new opportunities he hoped to confirm in the next few months.