Why Oroton Group is set to boom

Fashion vogues change on a yearly basis, but OrotonGroup has a strong long-term strategy.

The world’s fashion high streets were cleared almost as fast as a Bear Stearns men’s room by the economic turmoil in 2008. It hit many high end retailers hard as the streets they ruled over, once packed with well-to-do posers and Glitterati, were reduced to a smattering of very expensive tumble weeds and the occasional disoriented tourist. 

For its part, Sydney-based fashion retailer Oroton Group Limited (ASX: ORL) navigated the turbulence extremely well, growing sales and earnings noticeably from 2007 onwards. The company’s latest half-year result builds on the success over the last five years increasing group net profit after tax (NPAT) 2.1% to $16.4 million on flat sales but lower costs.

This year marks an important transition for Oroton who in 2012 announced it had relinquished rights to the licensing of the Ralph Lauren brand it has held since 1989. The transition involves the Ralph Lauren brand purchasing back inventory and store assets, as well as keeping on store staff and a US$1.5 million payment to Oroton.

Although it seems like a backward step for Oroton, which operates its own retail stores and also sells through chain retailers David Jones (ASX: DJS) and Myer (ASX: MYR), it represents a key strategic move to focus on the ‘Oroton’ brand and grow internationally.  The company will lose 34 stores with the exit of the Ralph Lauren brand, but focus on new ‘Oroton’ stores in big cities Hong Kong and Shanghai, as well as Dubai and/or Abu Dhabi to expand global scope of the brand in cities with large pockets of wealthy consumers to maintain margins.

In addition, the company is focusing on lower cost online sales which grew more than 60% in 2012 and accounts for around 10% of sales and is the fastest growing channel.  Online is being seen as a key strategy for most retailers and fashion retailers are no exception with companies like Kathmandu (ASX: KMD) and Specialty Fashion Group (ASX: SFH) marketing their online presence more aggressively.

Foolish takeaway

Fashion vogues change on a yearly basis, but the transition underway with OrotonGroup is a long-term strategy being conducted by a management team with a good history of navigating trouble times.  With a full year dividend yield of 6.7%, a p/e ratio of 12, a strong brand and a strategy aimed at growth, Oroton my just tick enough boxes for those of us who’s idea of fashion for the last 10 years is a collared shirt and a good pair of jeans.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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