Upmarket retailer, Oroton, fears its first half earnings could fall because it has stopped slashing the prices of its luxury accessories for shoppers.
The Australian-based retailer closed its Hong Kong store earlier this year, incurring hefty lease provisions which contributed to increased overheads. (The photo above was taken at the store’s opening in October 2013).
Oroton chairman, John Schmoll, says sales were lower in the first quarter of the financial year compared to 12 months earlier, when the retailer was offering more discounts.
He said the strategy to reduce discounting combined with the Hong Kong store closure and continuing startup costs from Oroton’s joint venture with US classic clothing label, Brooks Brothers, could cause a fall in first half earnings.
“The reduction in the level of Oroton discounting with a focus on quality margin generation in the first quarter has as expected led to lower sales than the more discounted first half of FY14, but importantly and strategically has led to an increase in the gross margin percentage to sales,” he told shareholders at Oroton’s annual meeting on Wednesday.
But, Schmoll said, it was hard to give earnings forecasts for the first half as Oroton’s biggest trading months were yet to come, with Christmas and the New Year sales just around the corner.
“We do anticipate though that the second half of FY15 will start to cycle these events and, accordingly, a return to modest underlying earnings growth for both that half and the full FY15 financial year,” he said.
Oroton lifted its net profit by 16 per cent to $8.3 million in 2013/14, aided by a sales recovery for its luxury own brand handbags.
It has been focused in recent months on bedding down its franchise deal with US retailer, Gap, and its Brooks Brothers joint venture.
Newly installed, CEO Mark Newman, told shareholders at the meeting that Gap was trading well, with the new stores performing better than expected.
Brooks Brothers stores were trading in line with expectations, but there had been delays in launching an online store.
Oroton has 13 Brooks Brothers stores and plans to open another two this year.
It has six Gap stores, which lost money last year but the business is now expected to break even in fiscal 2015.
Meanwhile, Oroton is continuing talks about launching the US clothing retail brand, Banana Republic, in Australia in early 2016.