It’s on a scale much smaller than Coles, but there’s a very clear lesson from the way luxury goods retailer, Oroton group, has gone about its recovery from a near death experience last year by pursuing a determined change in strategy.
The difference in size is enormous: Oroton group is capitalised at just over $110 million with the shares hitting a new 52 week high of $2.60 yesterday, up 30c after the result, or 10 per cent.
Struggling Coles has a market cap of more than $19 billion and the shares rose yesterday on more news about the break up and sale of the company, not an interim profit that was inadequate.
It took some tough decisions at Oroton group: from selling expensively acquired brands in Aldo shoes and the clothing labels, Marcs and Morrissey, significant changes in management with long time CEO, Ross Lane stepping down and new blood appointed. But it worked with interim earnings up 52 per cent to $6.10 million and a higher dividend.
But with not having to flog discounted unwanted product from Aldo, Marcs and Morrissey, the group’s retail margin improved in the half, a sign that the right decisions were made, despite the cost of more than $25 million (based on the purchase cost of the brands).
For all the difference in size the end result now is that Oroton group is at last starting to feed off the very strong retailing conditions, especially where it operates in up-market clothing and leather goods while Coles is stuck in a rut and headed for the corporate knackery.
The incoming CEO was Sally Macdonald who said yesterday that “The comprehensive restructuring program that was announced in September 2006 is firmly on track and early results are pleasing.
“There is significant further work to be completed, and we remain committed to driving the business to its full potential with our two core brands.
“Oroton remains the clear growth driver of the business overall, with stronger profitability and untapped potential.”
She said four new stores were trading well and the company expected to open a further six in the second half while the Oroton online store was also launched in the first half and was trading above expectations.
The company said there had been ‘some wholesale channel problems’ with Oroton’s Polo Ralph Lauren business with solid earnings on the back of an unchanged 11 per cent rise in like for like sales for the half year.
In contrast the company’s old mainstay, the Oroton business, saw an impressive 21 per cent rise in like for like sales in the half and the company is expecting that to improve as the impact of discounting the disposed brands allowed more time and money to be spent on Oroton.
During the first half Oroton sold its Aldo, Marcs and Morrissey businesses, and directors said this cut 10 per cent off the continuing cost base of the company with the savings to be really felt in 2008.
The board declared an interim dividend of six cents, up from five cents the previous year, earnings per share were 14.2c, so the higher dividend is well covered.
The company said key features of the first half result were:
· Sales revenue of $62.3 million for continuing operations, up 7.5% on LY
· EBIT of $9.2 million for total operations, up 35.4% on LY
· NPAT of $6.1 million for total operations, up 52.5% on LY
· EPS of 14.2c for total operations, up 47.9% on LY
· Strong retail trading environment for premium apparel brands and for the accessories market.
· Good like-for-like (L4L) sales performance in our core first retail businesses
· Wholesale trading was strong for Oroton and challenging for Polo in H1 07
· Gross margin improved over the period by 2% – H1 07 results achieved with little reliance on discounting in core brands
· Exit current wholesale arrangements in Oroton brand by end of FY07 to focus on retail store growth
· Exit 7 multi-brand factory stores to focus on full price growth.
Sounds simple now but last year it looked a tough-minded but necessary approach at some cost to a lot of people, and the company.
That’s a message that has been lost at Coles.
