Shareholder stumps up cash for struggling luxury retailer

oroton-touches-down-at-sydney-airports-t1-fashion-precinct-interiorStruggling luxury handbag retailer Oroton will lean on its largest shareholder to help turn its business around as its sales slump continues.

Oroton, which is negotiating with Westpac the terms of a $35 million facility that is due to expire in 2018, will receive up to $3 million credit support from its major shareholder and former director James Vicars, who holds an 18.2 per cent share.

The retailer expects its sales slump to continue after revenue declined 11 per cent in the nine months to the end of April, and has reaffirmed its guidance for underlying earnings before interest, tax, depreciation and amortisation of between $2 million and $3 million in 2016/17.

The luxury retailer has engaged investment bank Moelis & Company to assist it in conducting a strategic review, which may involve a sale, refinancing of debt facilities or recapitalisation of the business, with Oroton’s board to commence a formal process  to explore these options.

Oroton said it’s inviting additional parties to participate in the process, but that it was premature to comment in detail on potential structures, terms or outcomes.

At the middle of June, Oroton said its working capital advances, which are part of its Westpac facility, were drawn to a total of $16m, asserting this is reflective of the June seasonal high-point with the purchase of inventory for the upcoming Spring season. Oroton anticipates a net debt position at FY17 year-end of approximately $10m, which will “require ongoing support from Westpac to incur that debt.”

Oroton has earlier warned its full year underlying earnings will fall as much as 85 per cent because of an ongoing sales slump.

Oroton sees no end to the slide in its sales, which in the nine months to April were down 11 per cent on the same period a year ago.

The significant downgrade to the earnings forecast reflects an expectation of lower sales, a fall in the hedge buying rate due to foreign currency movements, and increased losses from Oroton’s apparel chain GAP.

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