The chances of upmarket accessories retailer OrotonGroup being privatised have risen sharply after it revealed yesterday it had hired investment bank Moelis & Company to conduct a strategic review warning of a shock plunge into the red for the 2016-17 financial year.
OrotonGroup, which had its shares halted on Monday after revealing April trading was weaker than expected (on top of a very weak first half) said earnings would plunge $10 million this year, pushing the company into the red.
The company’s share price joined earnings in the plunge – down 26% to $1 on its return to trading as investors handed out the now familiar punishment to companies that delivery surprises on the downside (Think WorleyParsons, The Reject Shop, iSentia etc).
The shares ended the day off more than 19% at $1.085 the lowest they have been for 18 years or more.
In its second profit warning in five months, OrotonGroup said that underlying earnings before interest, tax, depreciation and amortisation (EBITDA) are now expected to fall by $10 million to between $2 million and $3 million due to a sharp fall in sales in Oroton outlet stores and GAP stores.
OrotonGroup did not issue a forecast for net profit, but after taking into account depreciation and amortisation, which around $5 million a year, the latest guidance suggests a net loss as high as $3 million this year compared with market forecasts for a net profit around $1.5 million.
Interest will be a another variable and will add to costs and the size of the loss, while there is expected to be a big impairment charge or write down on unwanted stock and other assets. All up total losses could easily climb to a range of $5 million to $10 million.
OrotonGroup’s new chief executive and major shareholder, Ross Lane, who took the helm last month after the departure of Mark Newman, said group sales in the year to date were down 11% and trading was expected to remain challenging for the rest of the year.
“Poor and competitive market conditions during the April mid-season sale are expected to continue during the more important end of season sale of June/July and will further adversely impact financial performance during the remainder of 2017,” Mr Lane said in yesterday’s statement to the ASX
Losses at the GAP division (operated under licence from the US chain of the same name) were expected to rise to $3.5 million following, while Oroton’s international business was now no longer loss-making after the recent closure of the last Singapore store.
"The board acknowledges that the current level of profitability is unacceptable," Mr Lane said.
"We have engaged investment bank Moelis & Company to assist in conducting a strategic review to assess our various options."
Shareholders who own about 45% of the company, including the Lane family and Caledonia Funds chief investment officer Will Vicars, have been tipped to take the company private.
