The Australian luxury goods retailer OrotonGroup (ORL) has confirmed that it had a miserable first half, with net profit down by more than 66%, as it forecast in an earnings downgrade last month.
The company yesterday offered an unchanged guidance for the full year of earnings before interest and tax (EBIT) of $13 to $15 million, with the final amount to be closer to the lower end of that range.
EBIT for the six months to January 25 fell 24% to $8 million.
Like-for-like sales were up 3% in the half year on a 17% rise in topline sales to just over $62 million as the company opened new stores here and in Asia.
And the interim dividend was chopped by more than 60%.
The company blamed the weak result on the negative impact on profit margins of increased discounting, particularly over the Christmas New Year period, along with a “strategic decision” to reduce prices at the end of the last financial year.
The company said it expected margins to improve in the second half.
Despite that and the fact that the company met the lowered guidance, the shares fell sharply yesterday, dropping 5.3% to $3.58.
New managing director Mark Newman said the company has plans to boost the number of Oroton stores in Asia, reveal a new store concept in Australia, open more than a dozen Brooks Brothers stores this year and build the GAP brand.
But these moves are for the future (and will take some time to start making money).
Oroton’s real problem was the continuing damage the loss of the Ralph Lauren label is doing to sales and earnings. That will take more time to overcome.
Interim net profit for the six months ending January plunged from $16.4 million to $5.1 million.
ORL 1Y – OrotonGroup confirms first half slide – dividend slashed
Looking to the rest of the current year, the company said its "outlook for the remainder of FY14 is cautious. We expect the positive Oroton like for like sales trend to continue with a good response to the launch of the new Autumn collection now in store and for gross margins to stabilise.
"We continue to carefully review our cost base and have made further reductions to our store and head office expenses with the benefits to be recognised in H2-14. We expect the GAP business to benefit from fresh inventory and supply chain efficiencies and we are confident about the successful launch of Brooks Brothers in Australia.
"Accordingly, we continue to expect FY14 EBIT to come in at the lower end of our previous guidance of $13-15m.
"As we look forward to FY15 and beyond our strategy continues to be focused on 3 key pillars. The continued innovation and increased investment in our Oroton brand, through upgrading our store environment, investment in multi channel retailing, increased focus on customer experience, product innovation and international expansion; a successful launch of the Brooks Brothers brand; and the relaunch of the GAP brand here in Australia.
"We continue to have a strong balance sheet and cash flow position to support these initiatives and any possible acquisition or capital management initiatives," the company said yesterday.
Interim dividend was chopped 63%, from 22c to 8c a share, payable on April 16.
