OrotonGroup (ORL), the Sydney-based luxury products retailer and distributor, nicely exposed the panic merchants in the market yesterday with its interim profit report and higher dividend.
Several times in the past year the shares have been sold off violently because of earnings downgrades or weak results – or for no real reason – as we saw in January and early February when the shares lost 40% (from $2.80 on January 5 to a low of $2.01 on February 11).
The shares slid in the general sell-off which hit all sectors of the market (and all markets here and offshore). Investors who sold would have done better to keep their heads and sit because yesterday’s better than expected interim result saw the shares rebound by close to 40% at one stage before settling back for a day’s gain of more than 35%.
They ended at $2.61, up 27%.
ORL 1Y – Oroton shares jump as profit rebounds
Like Myer (see related story), Oroton shares were helped by the timing of yesterday’s profit announcement – hours after the US Federal Reserve halved the suggested number of rate rises this year from four to two (and the reality is that there will only be one, as in 2015).
With that good news ringing in their ears, investors were amenable to a bit of good financial reporting, which they received from Myer and especially Oroton.
OrotonGroup sales rose 12% to $74.5 million, beating market forecasts of around $70 million, with very solid same-store sales growth of 10% – 11% at Oroton brand and 6% at the newish Gap business (which has replaced the Brooks Brothers products).
The latest results follow a year to forget for the company in 2015, with full-year profits plunging 68% to $2.6 million as the company chewed up profit margins by stopping heavy discounting, and took losses exiting the Brooks Brothers joint venture, and had to spend on opening new Gap stores.
"The positive results in the first half of 2016 reflect the good momentum now being achieved by the strategic initiatives undertaken in the last 18 months," said Oroton’s chief executive Mark Newman.
"These initiatives include a sharpening of focus on our core Oroton brand and investing in elevating this iconic brand to a true affordable luxury offering, continued improvement in the international channel, accelerating trading performance of the Gap brand and exiting the loss-making Brooks Brothers joint venture in July 2015," he said.
Mr Newman gave no detailed forecasts but said the pleasing momentum in the first half put the company in good stead for the rest of the financial year.
“Despite the current business environment being uncertain and the market continuing to be heavily discounted, we anticipate positive like-for-like sales growth in the second half of fiscal 2016," he said.
But watch for analysts to upgrade full year estimates in coming days.
Oroton is a bit like outdoor clothing and products retailer Kathmandu. After it lost its way and started discounting to drive sales and profits, Kathmandu had to stop, get rid of excess inventory, change management and cut costs to stabilise and then start regrowing sales and profits, which it has done. (It is due to report its interim figures shortly.)
Oroton’s report yesterday confirms that is the only way for a retailer to save itself – take the pain early and focus on rebuilding core brands and the company’s core offers to its customers.
