Struggling handbag and accessories retailer, Oroton, has today announced it is closing the Gap franchise business in Australia, with store closures to be completed by 2018.

Oroton said it’s too early to quantify the financial impact of the move, however, the decision will end the group’s future investment in the franchise, which the company said would limit related future losses.

“The board and I thank the entire Gap Australia and Gap Inc. team for their dedication and substantial efforts to develop the Gap business in Australia over recent years,” Ross Lane, CEO of Oroton Group.

“Oroton Group also acknowledges the support and cooperation that it has received from Gap Inc. in amending existing arrangements.”

Oroton said today’s announcement, plus the extentsion of funds secured by Westpac announced earlier this week, were key milestones as part of its strategic review.

“Together they enable the group to work through the closure of the Gap franchise stores and focus resources on the strategy for the core Oroton brand in the future,” the company said.

The retailer said it is also pursuing multiple options for the business, including a sale, recapitalisation or refinancing of debt facilities.

“The board notes that there is no certainty that this process will result in a proposal or transaction for Oroton Group, nor what the terms of any such proposal or transaction would be, or whether such terms would be acceptable to, or recommended by the Oroton Group board.”

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.

Apparel supplier and retailer, Gazal Corporation, recently upped its stake in the struggling luxury handbag retailer.

Gazal – which jointly owns and manages PVH Brands Australia, a joint venture company in partnership with PVH Corp – confirmed it has acquired a 7.35 per cent shareholding in Oroton at $1.00 per share.

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