Oroton follows this year's fashion colour into the red

By | septiembre 29, 2017
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The carnage in the retail apparel industry just gets uglier. On Friday Oroton was the latest to deliver a result in this year’s fashion-colour – red.

The only thing that appears to be rising strongly in this market is the list of companies that are being put up for sale. While Oroton has already announced its position in the queue of companies looking for buyers, industry sources say there are many more suggesting that major accounting firms have been testing the market for potential buyers for Sportsgirl, Roger David and Blue Illusion, all of which have between 100 and 130 stores across Australia and New Zealand.

Myer to shut more stores

Department store Myer will close more stores and expects another difficult year ahead after its profits fell 80 per cent. Vision courtesy Seven News Melbourne.

Earlier this week at Premier Investments’ 2017 result, major shareholder Solomon Lew described as “a mile long” the number of businesses for sale.

Many won’t be sold either because price expectations are too high and they are not forced sellers, plus the fact there is limited appetite for existing players to double down in the retail space.

There has been speculation that a private equity business has been looking at Oroton. Based on its current equity value of less than $33 million, and the fact that one of its major shareholders, Will Vicars, has recently lent the company $3 million in what appears to be a move to pacify its bank lender, the price is unlikely to hit the ball out of the park. The company’s bank lender, Westpac, has extended its $35 million debt facility until October 2018, which gives it some headroom to either find a buyer or work on an injection of fresh capital from shareholders.

“Whilst the group continues to engage with interested parties in the process, there is no certainty this process will result in a proposal or transaction for OrotonGroup,” chief executive Ross Lane said.

The company posted a 2017 financial loss of $11.3 million.

In Oroton’s case there were a number of particular factors that affected its profit performance, the largest of which was the cost of extricating itself from the loss-making Gap business.

There were also non-cash impairments taken on the Oroton brand as the listed company’s sales revenue fell by an alarming 9.7 per cent.

Stripping out all the one-off losses, earnings before interest tax amortisation and depreciation came in at $2.7 million against last year’s result of $12.9 million.

Lane’s analysis of trading conditions read like the script that almost all apparel retailers have used in the 2017 reporting season. He said Oroton and Gap were affected by the soft and competitive retail environment during the key sales periods that started on Boxing Day and continued during the mid-season and end-of-season sale periods.

A number of retailers have also said that the trading in the first eight weeks of the 2018 financial year was looking a bit more positive, although it is too early to see whether any green shoots will be eaten away if the all-important sale periods result in another year of heavy discounting.

Lew might be looking to engage in a proxy war and inject himself or his people onto Myer’s board but making a full bid for Myer carries plenty of risk.

But the big game in town in retail revolves around what Lew is planning for Myer, he having requested the names of shareholders in order to contact them before November’s meeting.

While Lew is known for his patience as an investor, he bought his 10.8 per cent stake in Myer in March through his listed company, Premier, and its minority shareholders may not share the feeling given the value of the Myer holding has fallen by more than a third.

Myer recently reported a fall in profit and a small drop in like-for-like sales but warned that the first six weeks of trading had been below expectations.

Lew might be looking to engage in a proxy war and inject himself or his people onto Myer’s board, but making a full bid for Myer carries plenty of risk.

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