Oroton seeks new brand to plug potential $20 million plus earnings hole

OrotonGroup has a dramatically lower 2013-14 earnings forecast compared to the 2012-13 financial year, in the event it does not sign a new licencing agreement to replace the recently ceased Ralph Lauren Corporation contract.

OrotonGroup’s EBIT (earnings before interest and taxes) for financial year 2012-13 is expected to be approximately $40 million. For the 2013-14 financial year, it expects earnings will be around $23 million to $25 million if a new licence agreement is reached to replace RLC.

However, it reported that in the “unlikely event that there are no completed deals and assuming a continued challenging and discounted marketplace”, the group’s EBIT would be expected to be in the range of $16 million to $18 million.

OrotonGroup’s agreement with RLC to run Australian and New Zealand operations for the Polo Ralph Lauren brand ended on June 30, 2013. The relationship between the two companies lasted 23 years.

RLC purchased inventory and store assets, employed all retail store team members and took over the store leases, concession and wholesale obligations from OrotonGroup on July 1, 2013.

The predicted $40 million EBIT for the 2012-13 financial year has an expected positive earnings effect of approximately $3.5 million, and a once-off transition payment of $US1.5 million made by RLC to OrotonGroup.

OrotonGroup reported that it is assessing “specific acquisition and/or new licensed brand opportunities”. It will maintain infrastructure and associated overhead of approximately $14 million “in preparation for these future plans”.

In the statement released on Friday, OrotonGroup referred to recent discussions with potential partners, reporting that “discussions are well progressed”. It is confident that it will “confirm some promising opportunities over the next 3-6 months”.

Retail Doctor Group director Brian Walker told SmartCompany this morning that the prospects of OrotonGroup securing a new licencing agreement to claw back the gap in earnings are “reasonably good”.

“They have to find a brand that wants to be in Australia… Australia is the ‘flavour of the month’ at the moment due to the high GDP.”

Walker says OrotonGroup has enjoyed a good track record of success in licencing, and has a good senior team and well run board. He says the challenges will be finding the right kind of brand to fit their expertise and market segment; however, a positive is the upsurge in consumer support for the luxury and premium brand market.

“An alternative way to achieve revenue is to grow more stores under the Oroton brand,” Walker says. “They’d need around 60 to 80 new stores.”

The company will open its first Oroton brand store in mainland China by September 2013, as well as two more new stores in Hong Kong and Dubai before the end of 2013.

OrotonGroup chief executive officer Sally Macdonald was contacted this morning, but was not available prior to publication.


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