MENU

OrotonGroup Limited slammed: Why the Oroton share price plunged today

Summary:

  • OrotonGroup share price crushed after trading update
  • Weak sales performance in April, a key month for the retail business
  • Best to avoid until management can right the ship

The OrotonGroup Limited (ASX: ORL) share price has been crushed today following a disappointing trading update that downgraded its earnings forecast. Third quarter year-to-date group revenues are down 11% relative to the prior corresponding period, with a significant fall in earnings (EBITDA) forecast for the year.

On emerging from a two-day trading halt, the OrotonGroup share price fell to a low of $1.00 – a maximum decline of nearly 26% — and is currently trading at $1.06, down 21.5%.

Today’s loss compounds what had already been a terrible run for Oroton’s shareholders whose shares have now lost more than half of their value since the beginning of the year. Even more shockingly, the shares have fallen almost 87% in the past five years.

Source: Google Finance

OrotonGroup is a fashion accessories company, known particularly for its leather handbags and other luxury items. In an update to the market this morning, it said that it experienced soft trading conditions in the key Mid-Season Sale in April, exacerbating a decline in earnings that was flagged in the group’s half-year earnings announcement. It cited low consumer confidence and a competitive market as the reasons behind the decline.

Like-for-like store sales (excluding discontinued categories) improved to -2% in the first seven weeks of the quarter. Although that is still a very disappointing result, it was at least an improvement on the -8% recorded during the first half of the year. However, management still saw the need to revise its earnings forecasts for the year, particularly in light of the weak retail conditions experienced throughout the market recently.

OrotonGroup’s underlying earnings (EBITDA) is now forecast to be between $2 million and $3 million for the year. By comparison, it reported EBITDA of $12.9 million in the 2016 financial year.

Unfortunately for investors in the sector, OrotonGroup isn’t the first to have disappointed this year. The RCG Corporation Ltd (ASX: RCG) share price has also fallen hard following a disappointing update, together with Reject Shop Ltd (ASX: TRS), while the share prices of JB Hi-Fi Limtied (ASX: JBH) and Baby Bunting Group Ltd (ASX: BBN) have also shed much of their market value in 2017.

Although it’s often worth taking a look at beaten-down shares that could offer some value, investors ought to be cautious when approaching OrotonGroup. The company is clearly struggling to remain relevant to consumers right now, and the shares have the potential to fall even further if management can’t get its sales back on track. Until then, this certainly looks like a risk not worth taking.

For Investors Who Are Anxious About 2017

You never know when the share market could take a turn, and it's always good to be prepared. That's why one Foolish expert is revealing 5 of his favorite dividend payers now. These "strong and steady" shares indicate a healthy stream of income plus capital gains...

But you must act now. This newly updated report is available for a limited time only, and your copy is 100% free. So don't miss out!

Simply click here to receive your free copy of "Our Top 5 ASX Dividend Shares to Earn You Money in 2017" right now.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.