Is this stock poised to break out?

What bull market? Shares of leather-goods retailer Oroton Group (ASX: ORL) have dropped 12% in the last 12 months, while the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) have climbed 20%-plus, not including dividends.

This underperformance has followed news that the company lost its valuable licensing deal with Polo Ralph Lauren as well as a recent, related profit downgrade. However, this company’s fortunes could be changing as we speak.

New deal announced today

It’s true. Oroton’s fortunes may be turning around with a new deal just announced today — one that could see the company eventually return to growth mode and one that will also allow deprived Australian preppies to get their fix at Brooks Brothers, Down Under. (In the U.S., clothing brand Brooks Brothers is well known for outfitting finance types and even politicians, as well as those who aspire to socialise with them.)

As The Sydney Morning Herald has reported, “Under the deal, Oroton will hold a majority 51 per cent in a joint venture company for an initial term of 10 years, with a five-year renewal option, with the first four to eight stores and possibly department store concessions to open at the beginning of 2014… The new joint venture between Oroton and Brooks Brothers is expected to generate $3 million in sales in fiscal 2014 rising to roughly $50 million in the fifth year of business.”

It was also announced that longtime Oroton chief executive Sally MacDonald will step down, making way for Mark Newman, formerly vice president of Oroton’s Ralph Lauren operation, to take over.

An international angle

Oroton has also recently reported several stores openings planned for Asia: “The first Oroton brand store in mainland China will open in Shanghai by September 2013 and two further new stores in Hong Kong and Dubai will follow before Christmas this year.”

With China’s demand for luxury products growing – and Hong Kong’s and Dubai’s firmly established – these newer markets could help boost results in the core brand.

In the meantime, the fat dividend

It’s also got to be noted that Oroton shares pay a fat, fully franked dividend – the current yield is over 7%. In the shorter term, this dividend could provide the bulk of returns as the company gets the Brooks Brothers business and new Asian Oroton stores going.

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Motley Fool writer/analyst Catherine Baab-Muguira owns no shares in any company mentioned in this article.

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