Oroton's strategy to abandon heavy discounting for higher priced luxury handbags and accessories has given investors a glimmer of hope.
In the past seven weeks, like-for-like sales for the group's core brand, Oroton, have jumped eight per cent.
This is a sign the retailer's switch from mid-tier luxury goods to top-end products is gaining traction, the group's chief executive Mark Newman says.
"We have had a very positive reaction to a our Spring range with our second best selling bag for the season being a limited edition that retails for $1,200; double our usual average selling price," Mr Newman said.
He said it has taken 12 months of less discounting and the elimination of friends and family sales to reach this point.
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Shoppers initially reacted badly, with like-for-like sales plunging 12 per cent in the first quarter of 2014/15, but by the fourth quarter the decline was only three per cent.
Oroton's profit for the 12 months to July 25 was down 68 per cent to $2.6 million, from $8.3 million a year earlier.
The retailer's underlying profit, which strips out one-off costs, fell to $3.8 million from $9.1 million.
Despite this, pleased investors pushed Oroton's shares up 10 cents, 4.46 per cent, $2.34 at 1450 AEST.
optionsXpress market analyst Ben Le Brun said the jump in like-for-like sales in the first weeks of the new financial year had impressed the market.
"Their earnings have beaten their estimates a little bit but more than anything, it is the first seven weeks of 2016 which the market seems to like," he said.
"It augurs well for the rest of the year.
"Oroton is looking to strike at the heart of those luxury brand items and I think the market feels they can do it."
The group plans to improve profitability after cycling off a full year of the effects of discounting and early start up costs for the new GAP stores and the closure of some loss-making international stores.
The termination of the Brooks Brothers joint venture also impacted on earnings.
OROTON TARGETS UPTOWN GIRL
* Full year net profit of $2.62m, down 68.3 pct
* Revenue of $132m, up 5.7 pct
* Fully franked final dividend of 6.5 cents, down from eight cents
