Oroton chief executive Mark Newman says he is willing to endure the short-term pain of falling sales in order to restore the luxury accessory brand's prestige.
The retailer was punished by investors when it unveiled a 57 per cent drop in first half profit to $2.19 million and slashed its dividend on Thursday.
The worse-than-expected result, which followed a profit warning in January, was dragged down partly because of a 6.5 per cent slide in sales of the group's classic handbags and leathergoods.
Oroton blamed the slump on its decision to cut back on the number of discount clearance sales.
But Mr Newman stands by the decision to offer fewer discounts on the luxury goods, insisting it will help restore the brand's prestige in the long run.
"The important thing for the long-term health of the brand is to focus on quality sales, not clearance sales," he said.
"It's a spiral downwards if we continue down that route."
Mr Newman said Oroton's collaboration with Disney to produce two limited edition crystal clutches for its next blockbuster movie, Cinderella, as well as the roll out of new high-end stores would reinforce the initiative.
But Bell Direct equities analyst Julia Lee says Oroton's strategy of shying away from discounting isn't working fast enough.
"Sales are down and that means the cost of business has risen significantly," she said.
Mr Newman, however, says Oroton's efforts to reinvigorate the brand was resonating well with shoppers.
As a result, he expects modest earnings growth in the second half of the financial year.
"(And) by this time next year we would expect to be cycling some growth figures for the business," Mr Newman said.
He also expects the group's earnings to benefit because the costs from setting up a new venture with US clothing label Brooks Brothers and opening three new GAP stores will be behind it.
The Brooks Brothers business began trading in February but it cost more to set up than expected, due to an earlier-than-planned opening for its main Sydney store and delays in establishing its online site.
Oroton operates 71 Oroton stores, 13 Brooks Brothers stores and six GAP stores.
It struck new deals with Brooks Brothers and GAP to replace the Ralph Lauren licence it lost in 2013.
Oroton shares dropped 27 cents, or 10 per cent, to $2.44.
END OF DISCOUNTING PAINS OROTON
* Net profit of $2.19m, down 57 pct from $5.08m
* Revenue of $66.8m, up six pct from $62.9m
* Interim dividend of 4.5 cents, down from eight cents
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