WHILE Oroton Group had been hopeful of retaining the licence to exclusively distribute Ralph Lauren in Australasia, it could not have been too surprised this week when the global apparel brand decided to take back the business as of June 30 next year.
While the news shocked the markets enough to send Oroton's share price down as much as 20 per cent yesterday, the signs were already there in 2010 when the two parties extended a relationship two decades old.
At the time, Ralph Lauren took back the licence from Dickson Poon to distribute the brand in China, Hong Kong and a number of other Asian countries. The US-based company had earlier taken control of its brand in Japan and Europe.
It did not go unnoticed at Oroton.
Chief executive Sally Macdonald told BusinessDay: "While we're disappointed, we had contingency plans in place."
Oroton, one of the few star performers among Australia's listed retail stocks, said Ralph Lauren currently accounted for 45 per cent of group sales and 35 per cent of net profits.
"This is clearly a disappointing announcement," said Goldman Sachs analyst George Batsakis.
The broker dropped its price target on the stock from $9.90 to $6.95 and slashed earnings estimates by as much as 35 per cent over the next two years but retained a buy recommendation on the stock.
"Despite [the] announcement, we believe Oroton will be in a strong position to grow earnings from the 2014 financial year," he said.
Ms Macdonald stressed the opportunities in Asia the company could pursue with the freed-up capital, and "the opportunity to consider complementary acquisitions of owned and licensed brands that under the [Lauren] contract we were precluded from pursuing".
But she said the company was not preparing to ramp up its Asian expansion plans from its target of opening about four new stores a year. "To successfully build brands in new markets you need to do that in a measured way," Ms Macdonald said.
The company is expected to open new stores in Hong Kong and Shanghai next year.