Assignment #1: My draft, Brooks, Ralph, & Zac

It’s draft time. Firstly I would love your feedback on my assignment. And secondly, I know, its really long and I will be looking to chop it down for the final submission. There is just so much stuff to say about the past couple of weeks. Please let me know what your highlights are and I’ll make sure they survive the chop.

Assignment 1_Amy Plant

Company Spreadsheet 2016 (Amy Plant)

You can find OrotonGroup’s Annual Reports here:

2013

2014

2015

And, if you’re not totally sick of reading…

Tonight I’m going to touch on a few of the key points I have teased out of OrotonGroup’s ASX reports/media releases and Annual Reports over the operating period we’ve been asked to look at for Assignment 1. As we’ve read in Chapter 3 of Martin Turner’s Study Guide, Annual Reports are as much a marketing tool as they are for the necessary financial reporting required from publicly traded companies in Australia.  With this in mind, for some context, I’ll juxtapose these key points with parts of Deloitte Retail Review, Making sense of the silly season, (2014) which may offer one point of view for us to consider some of the language the company is using in their reports. Notice how they don’t use comparative terms like ‘under-performing compared to previous years’ but instead they choose language like ‘transitioning’. In fact, I played a drinking game and had a drink for every time the reports use the phrases ‘challenging retail environment’ or ‘transition’ I would probably be pretty hammered by the end of this blog post.

Before we start I’ll would encourage you to read, if you haven’t already, some of the context for my company in the lead up to this reporting period, and some further information on Oroton’s history. You will note in the aforementioned post OrotonGroup hit a record high in their share price in the lead up to the reporting period we’re studying for this assignment.

 

FY 2013

Year ending 27 July 2013

This is the first year we’ve been asked to look at. This is a significant year for OrotonGroup as they exit out of a 23 year licencing agreement with Ralph Lauren. I’d like to note that Ralph Lauren was named in Deloitte’s 18th annual Global Powers of Retailing report as one of the 250 largest global retailers. Furthermore Ralph Lauren was one of the 15% of companies listed trading in Australia; and of this 15%, the majority (37%) are in the operating in the fashion/apparel industry.  Perhaps we can take away from this Ralph Lauren is a very successful brand, and sees value in operating in the Australian marketplace.

Here is a little bit of what was being speculated in the media.

In September 2012 ASX report, then CEO Sally Macdonald, commented, “We expect FY13 to be a year of transition for the Group as we review our possible strategic options including acquisitions, partnerships, license agreements and capital management activities.” (20th September, 2012)

The profit from Ralph Lauren’s activities while still under licence with OrotonGroup is reflected in Income Statements under profit shown from discontinued operations for 2012 and 2013.

Sally also commented, “With the expiration of the Ralph Lauren license on 30 June 2013 we expect some level of cost reductions and improvements in cash flow this year… Market conditions remain tough and we approach FY13 with caution.”

http://www.orotongroup.com/images/pdf/asx_releases/20_09_12_fy12_announcement.pdf

A few months later, Sally noted in the half year ASX Report, “The group’s HY13 result is solid in what is a challenging retail environment with increased international competition and discounting levels.

“The outlook for the remainder of FY13 is cautious in what is a subdued retail environment undergoing increased global competition and price restructuring. In this year of transition, the effect of exiting the Ralph Lauren business is expected to result in it representing a greater share of the Group’s overall earnings than in FY12.” (21st March, 2013)

Certainly there did appear to be a greater share of the Group’s overall earnings in 2013 attributable to the Ralph Lauren business.

Interestingly, Sally left Oroton in 2013 ‘after a sharp slump in earnings following the loss of Oroton’s 23-year distribution licence with Polo Ralph Lauren’, as reported by Sue Mitchell for the AFR.

http://www.orotongroup.com/images/pdf/asx_releases/21_03_13_hy13_announcement.pdf

Now enter the 2013 Annual Report and Non-Executive Chairman, John Schmoll notes, like clockwork, “FY13 has been a year of transition for the Group as we exited the Ralph Lauren licence at 30 June 2013.” (27th July, 2013)

Read another perspective by FNArena.

Bye Sally, bye Ralph.

 

Move over FY 2013 and welcome FY 2014

Year ending 26 July 2014

2013 was a pretty average time to be a retailer in Australia. As noted by Deloitte, retail growth averaged at less than half of the average seen in the prior decade at 3% per annum. This trend is consistent with the rise of OrotonGroup’s share price in what I like to call their golden glory days during the noughties where their share price climbed from under $2 (prior 2002) to nearly $9.50 (around 2011). OrotonGroups margins were reduced towards the end of the FY13 due to a discounted market, and similarly impacted by a strategic decision to reduce Oroton product’s retail prices. Which is great if you’re in the market to snap up a bargain, but not so great if you’re a shareholder and were looking for some sweet dividends.

OrotonGroup had well and truly ended the relationship with Ralph, but they swiped a big old right for the Brooks Brothers, and guess what? When it rains, it pours: the twins swiped right too. Retail love at first sight. The first store planned to open in February 2014 (seriously guys, don’t tell me it was the 14th of February – that would be too perfect). In addition OrotonGroup started operating GAP in Australia in November 2013. Interestingly, the introduction of GAP had an effect on margins too because unlike Oroton which is a luxury brand with relatively higher margins (particularly on accessories), GAP sales are lower margin/higher sales volume. Which means you will make money, but you’ll need to sell more units to do so.

I haven’t looked for this decrease in margins in the financials yet because (get ready for a MASSIVE nerd alert) I really want to do this in class when we learn about ratios!!!! So watch this space.

Luckily, things were looking up too as Deloitte’s report suggested retail sales started out well in 2014 but unfortunately in the wake of the Federal Budget nastiness in the middle of the year, retail sales weakened.  New guy on the block, OrotonGroup CEO, Mark Newman commented in a 2014 half year ASX report, “HY14 was a period of significant transition for the Group..” [beer emoji] (10th March, 2014)

http://www.orotongroup.com/images/pdf/asx_releases/2014_03_10_hy14_company_announcement.pdf

 

 

FY 2015

Year ending 25 July 2015

FY 2015 is where things start to get interesting. In my first Assignment 1 post I noted that many of the amazing initiatives then CEO Sally Macdonald implemented during the golden glory days actually started to be worked back into OrotonGroup’s strategic objectives. In particular I would like to draw your attention to:

  • Reinvigorating the brand and creating new products
  • Leveraging Oroton’s Australian identity and fostering the brand’s authenticity/relevance to domestic markets

Enter Rose Byrne

OrotonGroup CEO, Mark Newman, prefaced the FY14 ASX report with, “FY14 was the beginning of a period of transformational investment for the Group..” And now we get to the good bits.

Our strategy to elevate the Oroton brand has commenced with the announcement of the internationally acclaimed Australian actress, Rose Byrne as the celebrity face of the brand and the roll out of our new store concept…”

“As we look forward to FY15 our strategy is focussed on our portfolio of 3 brands. FY15 will be a year of transformation for the Oroton brand as we focus on building a true attainable luxury positioning, with reduced discounting and focus on quality margin generation. We will continue to invest in strong marketing initiatives led by the Rose Byrne campaign and the new store concept roll out, which is already showing positive sales results.” (18th September, 2014)

http://www.orotongroup.com/images/pdf/asx_releases/2014_09_18_fy14_asx_announcement.pdf

To me, it seems OrotonGroup is looking to reinvigorate the brand by repositioning it as ‘true attainable luxury’. At the same time leveraging Oroton’s Australian identify and relevance to domestic markets by association with internationally acclaimed (and pretty effortless and luxurious I must say) Australian actress Rose Byrne, of Bad Neighbours Fame. You know the movie with Zac Efron? Yeah, you do.

Fast-forward to the 2015 ASX half year report and OrotonGroup CEO, Mark Newman, commented, “HY15 was a period of repositioning of the Oroton brand and expansion of the distribution reach of both the GAP and Brooks Brothers brands. As anticipated in our announcement in January, the underlying EBIT of $4.8m compared to $8.0m, reflected lower sales as a result of reduced discounting in the Oroton brand, continuing start-up costs in Brooks Brothers..

“After the first six months of its implementation, the Oroton brand strategy to reduce the level of discounting, with a focus on quality margin generation has, as expected, led to lower sales and is reflected in the like for like sales of -6.5% vs. HY14. Importantly, the net margin percentage to sales has improved in line with this strategy.” (19th March, 2015)

Looks like something was working, with the net margin percentage to sales improving. Like I said before, I would like to wait until we study ratios in class to fully appreciate the marvel that is accounting.

Here is another point of view from Inside Retail.

Interestingly the Income Statements reflect a loss attributed to Share of losses of joint ventures accounted for using the equity method in both 2014 and 2015. Brooks Brother’s joint venture? Could it be? Sadly yes. Confirmed in a media statement on 24th July, 2015 OrotonGroup agreed to selling its interest in Brooks Brothers back to the Brooks Brother’s Group. A gain on the exit of this short lived affair was noted under revenue in 2015.

Bye Brooks.

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20 comments

  1. Hi Amy

    Im have enjoyed reading through your Blog and through your Assignment. I hope you received the feedback i provided you and that it will help you complete this task.

    Yours Sincerely
    James

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  2. I try to be thorough when I get up to the financial section, things start to make sense. I had a look at your 2015 Annual Report. For such a large company it’s actually very straight forward – probably no surprise seeing its an engineering firm who work a lot with government contracts. The only tricky thing you may need to get your head around is they are showing a lot of negative numbers in their P&L. But that is fine, there are good explanations in the notes and also the company has secured finance activities for the FY15/16. Good luck!
    Amy

    Like

  3. Hi Amy, I will have a look at your draft next week and make comment. This latest post is very interesting. I wish I had your obvious understanding of what you are looking at. To be honest I have no idea who Rose Byrne is but she does look very elegant. It is interesting that both of our companies are falling back to a focus on their quality brand as a strategy to improve their outlook.

    Liked by 1 person

  4. I liked your blog a lot. You presented in a very friendly way that’s why I didn’t feel boring from top to the end. I hope you will get the worthy marks for your hard work. Cheers!

    Like

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