After all the negative reports this year (profit downgrades, closures, job cuts) for the struggling OrotonGroup, shareholders yesterday grabbed the first bit of good news for a while and gave the shares a solid push higher.
Not that improved sales wasn’t accompanied by news of more losses and write offs.
At one stage the shares were up more than 11% on better than expected news about the company’s sales performance (it has perked up).shares are climbing today, up a hefty 11 per cent in early trading. They held most of their gains and ended the day up 8.3% at 85.5 cents.
In the context of the market’s view of the company, the rise in sales and the belief of investors that this was good news outweighed news that the decision to close the loss-making venture with US clothing chain, Gap will cost Oroton at least $5 million before lease exit costs.
In yesterday’s trading update OrotonGroup confirmed that underlying earnings before interest, tax depreciation and amortisation, before one-off costs, would come in at the upper end of its previous guidance range of $2 million to $3 million (a small positive).
Another positive was the news that trading in the first four weeks (since the July end balance date) of 2017-18 had been positive, with like for like sales across the Oroton business exceeding those in the first four weeks of 2016-17.
But there are some nasties to swallow before the cheers become louder.
OrotonGroup said the impact of the closure of Gap on the 2017 results was still being determined but at this stage the retailer expected to incur additional costs around $5 million, including a non-cash impairment charge around $3.3 million and other related exit costs of $1.7 million.
These costs do not include any Gap lease exit costs, which are subject to ongoing discussions with lessors.
It is also still reviewing the carrying value of other assets as part of a strategic review, which is assessing options including a sale of the business, recapitalisation or refinancing of debt facilities. The small EBITDA figure (pre one offs) for 2016-17 compares with underlying EBITDA of $12.9 million in 2015-16.
It includes about $2.6 million in operating losses at Gap, but does not include about $1.3 million in one-off costs related to the purchase of accessories business The Daily Edited, a payout to former chief executive Mark Newman, the costs of the ongoing strategic review or Gap closure costs. So there’s a big bottom loss looming later this month.
Oroton said it had net debt at July 31 of about $5.4 million down from the previous estimate of around $6 million.
