Oroton downgrade on losing licence for Ralph Lauren

Shares in luxury fashion group Oroton slumped by 10 per cent after the company warned softer than expected trading conditions would shrink its 2013 earnings and then fall off a cliff in 2014 due to the loss of its flagship Ralph Lauren licence.

Oroton, which sells a portfolio of expensive handbags, shoes and clothing, said it was preparing its 2012-13 financial results and expected group earnings before interest and tax (EBIT) to be roughly $40 million.

This result will include a $5 million one-off gain made from the loss of its licence agreement with fashion label Ralph Lauren, as its balance sheet and provisions were reassessed.

Its weaker 2012-13 result will include a transition payment to Oroton of $US1.5 million and a balance sheet adjustment of $3.5 million in Oroton's favour.

But overall the loss of Ralph Lauren, which historically has accounted for 45 per cent of group sales and 35 per cent of net profits, would punch a gaping hole in the company's results.

As the Ralph Lauren label moved out of Oroton's control it recorded a spike in sales and is expected to achieve a materially greater proportion of Oroton's profits in 2012-13 than in 2011-12.

Oroton said in 2014 its EBIT would likely fall to between $23 million and $25 million without a new fashion label acquisition to help support overhead costs and replace Ralph Lauren in its offering.

Skittish investors were spooked by the earnings downgrade for 2013 and the potential for worse to come. On Friday they sent Oroton shares down 10.6 per cent to a low of $6.54.

The shares later closed at $6.80, down 7.1 per cent.

Oroton has become the latest retailer to admit to deteriorating profits on the back of limp consumer confidence and intense competition among the shops for scant discretionary dollars. Other retailers such as Target, Noni B and furniture retailer Nick Scali have also warned of tough trading conditions.

It also comes as the sector is about to enter the 2013 earnings season.

Oroton is one of the first top-end retailers to downgrade its earnings with all eyes now turning to other upmarket chains to discover if their earnings will also be slashed.

Oroton's watered-down expected EBIT of $40 million for 2012-13 (or $35 million when the one-off gains from the loss of the Ralph Lauren licence is stripped out) is against $37.8 million in the previous year.

Oroton said it was on the hunt for acquisitions to plump up its fashion portfolio and will maintain infrastructure and overhead costs of roughly $14 million in fiscal 2014 to prepare for new business opportunities.

It said the first Oroton shop would open in China (Shanghai) by September 2013 with two more stores to follow in Hong Kong and Dubai before Christmas.

Oroton said it expected its full-year 2013 dividend would be consistent with the 50¢ per share paid in 2012.