Oroton talks roll on as profits decline

Embattled handbags merchant Oroton says talks with potential buyers of the business are continuing but may not result in a deal, as slumping sales and costs from its Gap divorce drove it to an annual loss.

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The iconic Australian accessories brand, founded 79 years ago, sank to a $14.3 million full-year loss in the year to July 29, compared to a $3.4 million profit the previous year.

Oroton Group’s total sales for the year were down 9.7 per cent to $123 million while the Oroton brand suffered a six per cent fall in like-for-like sales, excluding the wind-down of its non-core categories of apparel, footwear and lingerie.

The group blamed sluggish sales during key trading seasons, weak sales of bags at factory outlets and one week less of trade for the weak results.

Interim chief executive Ross Lane, the grandson of Oroton founder Boyd Lane, said he was disappointed with the group’s performance but remained focused on the strategic review announced in May.

“We have been focused on exploring recapitalisation, refinancing and potential sale options,” Mr Lane said.

“That work is still underway and we expect to have more to say on it early next year.”

Mr Lane said the group was in talks with interested parties but “there is no certainty this process will result in a proposal or transaction for Oroton Group”.

Like-for-like sales at the group’s six Gap stores – due to be closed by the end of January after Oroton terminated its franchise agreement with the US apparel brand – fell 11 per cent.

Mr Lane said the Gap franchise wind-down was going to plan and had contributed $11.3 million in costs during the 2017 financial year, including $5.2 million in terminated lease contracts.

The group’s underlying earnings before interest, tax, depreciation, and amortisation of $2.7 million was down from $12.9 million the previous year, but in line with Oroton’s guidance given in May.

Mr Lane said the first eight weeks of the 2018 financial year had shown a lift in sales and profit margin.

CMC Markets chief market strategist Michael McCarthy said Oroton’s market capitalisation well below historical levels.

“Now that it is so cheap, it could be subject to a takeover,” he said.

While Oroton was a strong brand, Mr McCarthy said, brands had less traction than they used to, which left the company vulnerable.

Many brand-based strategies had fallen over, including Oroton’s own past experience with Brooks Brothers and, now, Gap.

“Brand-based strategies are really suffering in the current environment, as Myer has also discovered with cycles so accelerated – the spread of information so quick – that a brand cycle can be over before it began,” he said.

Shares in Oroton closed at 78 cents on Friday.

OROTON SUFFERS A GAP IN PROFITS:

* $14.3m net loss for 2016/17, vs $3.4m profit a year earlier

* Revenue down 9.7pct to $123.2 million

* No final dividend, compared to three cents a share in 2015/16