The name OrotonGroup Limited (ASX: ORL) has long been associated with the sale of high-end fashion brands in Australia. The group's flagship Oroton brand has been a strong performer over many years, however the loss of the Ralph Lauren licence in Australia has seen the company's share price fall over 50% in 18 months to close Friday at $4.00.
The 2014 financial year was surprisingly good, with revenue up 25%, net profit up 16% and the expansion into Asia underway, however the results were still a long way from the group's best year in 2012. The loss of the Ralph Lauren license (and subsequent startup costs associated with new brands) have seen earnings per share fall from 60.8 cents in 2012 to just 20.2 cents last financial year.
New Brands
Analysts are starting to come around to the idea that the group's two replacement brands, Gap and Brooks Brothers, can do some heaving lifting over the next three to four years. Gap, with more mass-market appeal, is understood to have lower margins than the Oroton and Brooks Brothers brands and will result in lower group margins over time, however the rollout of new stores and concessions is expected to boost revenue and profit.
Asian Expansion
The other major catalyst for share price and profit growth is Oroton's expansion into Asia. Oroton currently has five stores in Malaysia, three in Singapore, two in China and one in Dubai. Depending on the consumer takeup of these stores, analysts at Credit Suisse believe that up to eight more stores could be opened over the next two to three years.
They also note that the Malaysian stores are already cashflow positive, while the Singaporean stores should reach that milestone in the next 12 months. On a recent trip to Singapore I noted the popularity of the Oroton store I walked past, even though it was surrounded by other luxury brands.
Profit to Double
These catalysts have led some analysts to forecast a doubling in profit by the 2016 financial year. The spread in forecasts is significant and indicates that it's going to be difficult to predict performance over the short term. Importantly, even the most pessimistic estimates point to steadily increasing earnings over the next three years.
