Shares in OrotonGroup (ORL), the country’s largest domestic luxury goods group, jumped more than 4% yesterday, despite reporting a swingeing 68% slide in earnings for the year to July.
The 4.4% rise to $2.34 was somewhat at variance with the usual market sell-off after a company reports such a large slide in profit.
But Oroton has already seen its shares pounded, twice, after separate earnings downgrades in late May and then in mid-August.
So the net profit reported yesterday, $2.6 million, down from $8.3 million in 2013-14, wasn’t such a big surprise.
The retailer’s underlying profit, which strips out one-off costs, fell to $3.8 million from $9.1 million.
Investors were grateful that despite the weak profit, the company is maintaining dividends.
The final dividend of 2 cents brings the full-year payout to 6.5 cents, understandably down sharply from the 16 cents for the 2013-14 financial year.
Revenue rose 5.7% to $132 million as Oroton attempted to quit unsold stock and reorientate its approach away from discounting back to full-priced sales.
ORL 1Y – Oroton delivers well flagged weak result
Chief executive Mark Newman says the drop in earnings was partly due to to the retailer reining in heavy discounts on its Oroton range.
"Fiscal 2015 was a challenging year with the results reflecting the short term effects of repositioning our core Oroton brand to a true affordable luxury positioning," he said in a statement.
He said the expansion of the GAP brand (from the US) and a full year of losses from the now ended Brooks Brothers Australia joint venture also contributed to the weak result.
The group plans to improve profitability after cycling off a full year of the effects of discounting and early start-up costs for the new GAP stores and closed some loss-making international stores, he added.
Mr Newman said the ongoing rollout of Oroton’s new store concept, more top-end products, limited editions and new categories such as fine jewellery and watches formed part of the group’s strategy to return to profit.
Mr Newman said in yesterday’s statement, "Our strategy to elevate the Oroton brand is gaining real traction and in addition to significantly reduced levels of discounting, the strategic initiatives undertaken during FY15 have positively impacted our customers perceptions of the brand.”
"These include our new international quality store concept, higher average selling prices and average transaction value, because of increased average price points and limited edition products and our first full year with international Australian actress Rose Byrne as the face of the brand.
"These initiatives have, however, come at the cost of reduced sales and earnings this year and although the reduced levels of discounting resulted in an increase in margin at constant currency, this was offset by a lower AUD/USD rate, despite being well hedged.
"In FY15 LFL sales were -6% but on a quarter-by-quarter basis, the brand’s performance improved throughout the year from -12% in Q1 to -3% in Q4. We have seen encouraging results in the first weeks of FY16 with LFL sales growth of +8% as we begin to cycle a like for like promotion plan,” Mr Newman said.
