Shares in clothier OrotonGroup Limited (ASX: ORL) have fallen further today, losing 21% to $1.67 after the company announced a further update to the negative sales first reported at its Annual General Meeting (AGM) last year.
Like-For-Like ("LFL") sales have materially worsened, from being down 8% at the time of the AGM last year, to being down 10% now with just two weeks remaining in the first half of the year. Curiously, OrotonGroup LFL sales were up 10% at the same time last year, suggesting the company has lost most of the ground it gained.
A weak women's range and more aggressive discounting from competitors was identified as a key contributor to weaker sales. Sales in the GAP brand fell hard, down 11% compared to a 6% increase at the same time last year. Core Oroton brand sales seemingly improved from last year, with LFL sales excluding discontinued categories 'continuing to be positive against strong LFL store sales from last year of +11%'. How positive these sales were was not specified.
The first half is now expected to deliver Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of between $4.5 million and $5.0 million, down approximately 40% from $8.9 million in the first half of 2016.
Curiously, management pointed out that 2016's $8.9 million was 25% above 2015's first half result of $7.1 million. This shows that Oroton's first half was extraordinarily weak, the worst result since before 2014.
Foolish Takeaway
Oroton looks cheap on the face of it, but its worsening results and comments about competition show that it will likely cost investors more than it will make them. When fierce competition is the primary reason for the weakest first-half result in more than 3 years, that is a sign that it is not time to buy this company.
