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Luxury Retailer Oroton cuts Earnings Forecast

Luxury Retailer Oroton cuts Earnings Forecast
May 22, 2015 By Simon Herrmann

Luxury fashion retailer Oroton Group (ASX:ORL) reported that it has cut its second-half FY2015 earnings in its Preliminary Earnings Update on Friday. The company reported that “despite uncertain consumer confidence and economic conditions, we expect modest earnings before interest and tax (EBIT) in the second-half of FY2015 compared to H2-14, as we gain traction with our strategy to elevate the Oroton brand, including growing margin, with reduced discounting, a return to like for sales growth and higher average selling prices.”

Oroton cited weakness in its GAP and Brooks Brothers operations and expects losses compared to the second-half of 2014. The company said it had taken steps to manage the cost base of the brands, including supply chain efficiencies. The report said the company’s expected group EBIT for FY2015 would be 66 per cent lower than the previous corresponding period, from $13.3m to $4.5m. Up to $3m of the drop in EBIT was attributed to the weaker Australian dollar, despite the company’s conservative hedging policy.

Chief Executive Officer and Managing Director Mark Newman also noted that the significant discounting program by Oroton led to smaller profits. “Third quarter and April in particular, reflects how much the heavy discounting from previous years has eroded the brands’ prestige,” he said in the report. “We have made significant headway in re-establishing Oroton as a true Australia luxury brand, with a new, elevated store concept, limited edition products, focusing on “clienteling”, an increase in average transaction value and endorsement as a luxury brand in the press.” Shares of the company have fallen 35c, or 13.67 per cent, at $2.21 per cent. ORL has fallen to its lowest point since 2009. It is down 42.45 per cent in the last 12 months and 41.48 per cent so far this year.

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Simon Herrmann Author: Simon Herrmann May 22, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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