Wellington, June 30 NZPA - News that unprofitable Pumpkin Patch stores would close in the United States, putting the US business on hold and improving the group's financial position, helped boost shares in the children's clothing company today.

Pumpkin Patch, which in February warned that store closures were likely in the slowing US economy, said today it would close 20 out of 35 US stores within a couple of months. The move would leave it with stores on the west coast.

"It reduces the losses over the next period and it doesn't preclude them from expanding again once the US economy recovers, and depending on how the concept's been going on the west coast (of the US)," Forsyth Barr analyst Guy Hallwright told NZPA.

"They've basically moved to allowed themselves to remain in a holding pattern without it costing so much money."

Pumpkin Patch shares were up more than 7 percent at $1.45 in mid-afternoon trade, having hit a nine-month high of $1.51 earlier, on news of the lower than expected costs of store closures.

Non-cash costs were expected to be between $30m and $34m, with cash costs of between $6m and $8m. All reorganisation costs would be fully recognised in the 2009 financial year.

The US segment was now expected to make a loss in the 2010 financial year of around $3 million, better than analysts' average forecasts of a $13 million loss.

That would help boost the group's earnings and cashflow results.

"Like all retailers, their next move is basically trying to improve profitability in a pretty difficult environment everywhere around the world. Nobody's going to be in major expansion mode," Mr Hallwright said.

Despite initial success, the imposition of import quotas and the prolonged financial crisis in the US had created significant headwinds for the profitability of the US operation, chief executive Maurice Prendergast said.

"The plan we have outlined today allows us to build from a lower base in a much more structured way and enables the United States company to go into the future with far more financial certainty," he said.

Assuming no further deterioration in trading levels, the company expected the reorganised US store network to generate a close to break-even earnings result at store level, while US head office costs would be reduced.

The reorganisation plan did not affect the remaining 220 company-owned stores, parent company or any other trading segment including the US wholesale company.

The company's year-end bank debt was now expected to be at the lower end of the $30m to $40m range previously forecast.

Inventory levels had been rebalanced much quicker than originally anticipated, while trading in other retail markets continued to be reasonably robust considering the generally poor retail conditions, Mr Prendergast said.