The OrotonGroup Limited share price is rising on takeover talk

Shares in luxury fashion business OrotonGroup Limited (ASX: ORL) are up 4% to $1.08 in trade today after the group flagged that it is effectively up for sale.

It also reported that it is “exploring” other strategic options that may include a capital raising or debt restructure to help it survive some tough times recently as Australian consumers tighten their belts and the company’s sales fall at alarming double-digit rates.

Fashionistas can be fickle in nature and it seems Oroton’s luxury handbags and other designer goods are no longer able to command the premium prices they once did, with discounting sometimes impacting the products’ prestige in the eyes of luxury fashion fans.

The group’s GAP brand has performed poorly, with it forecast to produce “negative underlying EBITDA” of $3.5 million for FY 2017 as the mid-range apparel retailer fails to perform amidst strong competition.

Oroton Group expects to deliver full year EBITDA (operating income) of $2 million to $3 million, but flagged today that its net debt stands at $16 million as at mid June, with most of it held by Westpac Banking Corp (ASX: WBC).

The group expects the debt load to fall to $10 million as its inventory and working capital mix shifts, but it’s evident why it’s actively looking at a sale, debt, or capital restructure.

Other Aussie apparel retailers such as Marcs, David Lawrence and the TopShop franchise have been forced to call in the administrators recently due to weak consumer confidence and retail sales. Evidently investors in this space need to tread very carefully with one potential option for the bargain hunters being footwear business RCG Corporation Ltd (ASX: RCG).

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Motley Fool contributor Tom Richardson owns shares of RCG Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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