MENU

Why Oroton Group is set to boom

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.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.