Fashion and luxury goods retailer OrotonGroup Limited (ASX: ORL) downgraded its full year profit guidance this morning and in the process blamed past mistakes for the poor performance.
The group is now forecasting underlying earnings of $4.5 million, compared to $13.3 million last year, with around $3 million of the decline attributed to a weaker Australian dollar.
Earnings will be lower in the second half of financial year 2015 compared to the prior corresponding period and management's excuse around this being the result of a hangover from old strategies is unlikely to wash with investors.
Other reasons offered up for the poor sales include the timing of ANZAC Day and Easter, but the bottom line is the much-trumpeted strategy to reduce discounting and promote the brand appears to be having little to no effect.
It was only back in January that the group downgraded its guidance for the first half of the year stating that the repositioning of the Oroton brand would need time to see results.
One thing the market will not provide is time and the stock has tumbled 20 per cent in morning trade and collapsed in half over the past year as investors lose faith in the company's ability to turn itself around.
In addition the Gap and Brooks Brothers stores are still performing poorly as both brands "achieved lower sales and margin than forecast and consequently contributed a higher loss than the prior corresponding period in the quarter."
The luxury goods and sartorial fashion market is notoriously fickle, where image is key and competition will quickly eat up market share. Soft consumer sentiment over much of the past year is also unlikely to help, but seismic earnings falls like these suggest a more underlying problem to concern investors.
Oroton looks a business to watch from the sidelines until evidence appears that the brand is back on track and able to return to a growth trajectory. I suspect there may be more tough times ahead as the market reassesses the overall outlook.
It's not the only retailer feeling the pain recently as Kathmandu Holdings Ltd (ASX: KMD), Myer Holdings Ltd (ASX: MYR) and Billabong International Limited (ASX: BBG) also suffer from a fast-moving retail landscape.
If you're looking for a top stock to buy now why not consider the kind of businesses that benefit from competitive advantages to generate consistent earnings and share price growth? The kind Warren Buffett might like..
