Australia | Mar 27 2024
Premier Investments' first half earnings surprised brokers amidst a cost of living crisis. Management announced plans to separate the two growth drivers.
-Premier investments H1 beats on earnings
-Cost control applauded
-Growth plans for Smiggle and Peter Alexander
-Planned de-mergers could unlock value
By Greg Peel
Premier Investments ((PMV)) operates apparel chains Just Jeans, Jay Jays Portmans, Jacqui E, Dotti and Peter Alexander, along with Smiggle, which sells stationary and other ancillaries mostly aimed at kids. The company also has a 26% stake in Breville Group ((BRG)) and a 28% stake in Myer Holdings ((MYR)).
The company reported $209.8m in first half retail earnings yesterday, ahead of $200m guidance provided at its AGM, also beating consensus forecasts.
The earnings beat came despite a fall in group sales of -3.4% -- greater than expected – with Portmans the worst performer (-16% year on year) and Smiggle equally disappointing (-4%). Peter Alexander surprised to the upside (+7%).
Earnings exceeded expectations due to gross margins holding up better than expected. This was achieved by "impressive" management of cost of goods sold and the cost of doing business as consumers face cost of living pressures. Management kept inventory tight and rent and employee expenses well contained despite lower sales.
Demergers
While Premier’s legacy apparel brands have tended to just chug along, the stars of the retail stable in recent times have been Peter Alexander, which specialises in sleepwear, and Smiggle.
Management reiterated its growth plans for retail, including a new loyalty program by this Christmas, 20 new and larger format Peter Alexander stores in Australia/New Zealand, two new Peter Alexander stores in the UK, and a dedicated UK website, 30 new Smiggle stores in existing markets (A&NZ and UK), and a wholesale partner in Indonesia to open 100-plus stores.
More generally, Smiggle is targeted for future offshore growth.
But Premier wants to get rid of Smiggle, and Peter Alexander. More specifically, management is working towards a de-merger of Smiggle into a separate listed entity by January 2025 and exploring the prospect of doing the same with Peter Alaxander sometime in 2025.
The de-mergers have been met with varying broker views.
If the de-mergers were to proceed, says Morgan Stanley, “we should see a meaningful valuation unlock”.
Jarden questions whether the company wouldn’t be better off going the way and de-merging Apparel into another entity, thus minimising dis-synergies. Jarden nonetheless expects either strategy would result in a re-rate.
Citi says “We will look for further detail as to why Premier is looking to demerge these growth businesses separately”.
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