Summary:
- OrotonGroup share price crushed after trading update
- Weak sales performance in April, a key month for the retail business
- Best to avoid until management can right the ship
The OrotonGroup Limited (ASX: ORL) share price has been crushed today following a disappointing trading update that downgraded its earnings forecast. Third quarter year-to-date group revenues are down 11% relative to the prior corresponding period, with a significant fall in earnings (EBITDA) forecast for the year.
On emerging from a two-day trading halt, the OrotonGroup share price fell to a low of $1.00 – a maximum decline of nearly 26% — and is currently trading at $1.06, down 21.5%.
Today's loss compounds what had already been a terrible run for Oroton's shareholders whose shares have now lost more than half of their value since the beginning of the year. Even more shockingly, the shares have fallen almost 87% in the past five years.
OrotonGroup is a fashion accessories company, known particularly for its leather handbags and other luxury items. In an update to the market this morning, it said that it experienced soft trading conditions in the key Mid-Season Sale in April, exacerbating a decline in earnings that was flagged in the group's half-year earnings announcement. It cited low consumer confidence and a competitive market as the reasons behind the decline.
Like-for-like store sales (excluding discontinued categories) improved to -2% in the first seven weeks of the quarter. Although that is still a very disappointing result, it was at least an improvement on the -8% recorded during the first half of the year. However, management still saw the need to revise its earnings forecasts for the year, particularly in light of the weak retail conditions experienced throughout the market recently.
OrotonGroup's underlying earnings (EBITDA) is now forecast to be between $2 million and $3 million for the year. By comparison, it reported EBITDA of $12.9 million in the 2016 financial year.
Unfortunately for investors in the sector, OrotonGroup isn't the first to have disappointed this year. The RCG Corporation Ltd (ASX: RCG) share price has also fallen hard following a disappointing update, together with Reject Shop Ltd (ASX: TRS), while the share prices of JB Hi-Fi Limtied (ASX: JBH) and Baby Bunting Group Ltd (ASX: BBN) have also shed much of their market value in 2017.
Although it's often worth taking a look at beaten-down shares that could offer some value, investors ought to be cautious when approaching OrotonGroup. The company is clearly struggling to remain relevant to consumers right now, and the shares have the potential to fall even further if management can't get its sales back on track. Until then, this certainly looks like a risk not worth taking.
