Plenty Of Ambition At Myer & Premier

This story features PREMIER INVESTMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: PMV

The company is included in ASX200, ASX300 and ALL-ORDS

Following the transfer of brands to Myer from Premier Investments, analysts review interim results for both companies and weigh their respective outlooks.

-Transfer of brands to Myer from Premier Investments completed
-Premier’s Smiggle concerns, distribution centre issues at Myer
-Progress update on the Peter Alexander UK expansion
-Plenty of growth ambitions for both retailers

By Mark Woodruff

Retailer Premier Investments ((PMV)) now operates sleepwear stores Peter Alexander and children’s stationery chain Smiggle within its Retail division following divestment of non-core Apparel Brands in exchange for shares in Myer ((MYR)) valued at $864m. The transaction completed in January this year.

Premier also owns a 25% stake in kitchen appliances growth company Breville Group ((BRG)) and operates an Investment division which includes properties, securities for both long and short-term gains, rental income, dividend income, and interest.

Modeling by Morgan Stanley defines the firm’s valuation as approximately 58% from Peter Alexander, while 14% relates to Smiggle, and around 20% stems from the investment in Breville.

The transaction with Myer includes popular fashion chains Just Jeans, Jay Jays, Portmans, Dotti, and Jacqui E which are set to expand Myer’s retail footprint to over 780 stores across Australia and New Zealand, adding approximately $1bn in annual sales and increasing employees by 50% to 17,300.

Myer has now scope for revenue synergies through cross-shopping opportunities with Apparel Brands customers and eCommerce upselling, with the acquired brands now available via myer.com.au.

As Premier and Myer have July year-ends for financial reporting, both have released interim results over the week past. Both were broadly in line with expectations.

Premier’s first half performance and Smiggle concerns

Premier’s first half was messy because of the de-merger of Apparel, but on an underlying basis, earnings were broadly in line with guidance and analysts’ expectations with Peter Alexander and Smiggle turning in respective beats and misses.

Sales momentum overall improved into the second half, notes Morgan Stanley.

Ord Minnett labels Smiggle’s performance as rather mixed, with strong sales in Australia and New Zealand but declines internationally.

Petra Capital highlights incremental positives in the A&NZ region including ongoing strong sales for Peter Alexander. Smiggle momentum improved in the key January-February back-to-school season, notes Bell Potter, resulting in an upturn in the first five weeks of the second half.

Petra Capital suggests the Smiggle product outlook appears promising due to a strong movie pipeline arising from collaborations signed. Jarden agrees trends are improving and management has begun to drive more unique product.

On the flipside, Smiggle’s offshore sales remain challenged and the outlook for Peter Alexander in the UK includes a difficult macro-economic backdrop.

Smiggle has been under pressure due to ongoing cost-of-living challenges affecting consumers, and, according to Jarden, it also faces one of the highest levels of cross-shopping (among the companies under the broker’s coverage) with value-focused platforms such as Amazon, Shein, and Temu.

The drivers behind Smiggle’s sales weakness remain a key point of investor debate, notes Morgan Stanley, with factors under scrutiny including cyclical headwinds, structural challenges such as increased competition, and potential mis-execution (if that is a word).

Premier’s interim: the numbers

Revenue was flat year-on-year at $455m versus guidance of between $450-453m. By segment, Peter Alexander sales rose by 7% while Smiggle’s sales fell by -15%.

Retail earnings (EBIT) fell by -16% year-on-year to $129.4m versus guidance for $129-130m, impacted by a -60bps fall in gross margin to 67.8% and opex de-leverage with like-for-like sales easing by -4%, explains Morgan Stanley.

The weaker gross margin performance derived from the higher margin Smiggle business and ongoing cost pressures, particularly rent and labour, explains Jarden.

Ord Minnett blames promotions and foreign exchange headwinds, though cost reductions in Chinese factories may ultimately offset these pressures.

Peter Alexander UK expansion

A loss of -$6.3m was incurred in the half because of the UK expansion, prompting Chairman Solomon Lew to say there would be no more openings until UK retail conditions improve.

Peter Alexander opened three stores in the UK in the first half with a further seven stores identified for the initial launch.

The brand is well positioned to succeed in the UK,  suggests Morgan Stanley, as that market remains highly fragmented with no clear category leader, creating an opportunity for a differentiated, fashion-focused offering to disrupt the space.

Locally, the broker views Peter Alexander as one of the strongest retail brands in the A&NZ region, with sales having doubled over the past five years.

The next phase of growth is expected to be driven by new store openings and the rollout of larger-format store upgrades.

Myer commentary and results

Last week’s interim results for Myer revealed solid outcomes given the current macro-economic conditions, suggests Canaccord. First-half revenue and earnings (EBIT) beat Morgan Stanley’s forecasts by 1% and 5%, respectively.

While the first five weeks of the second half showed sales down -2.6%, management explained sales would have been flat after adjusting for major events, promotion timing, and the leap year.

Putting aside National Distribution Centre (NDC) complications and ramp-up delays, comparable sales were flat in the first half, notes Canaccord, and underlying earnings (EBIT) slipped by -4%.

Negatively impacting earnings, Myer experienced temporary headwinds from its new Victorian NDC, which are expected to provide a tailwind in fiscal year 2026, according to Ord Minnett.

Morgan Stanley agrees fixing the NDC issues provides near-term earnings upside, along with benefits from further refinancing of debt facilities and restoring profitability for Myer Specialty Brands.

While second half like-for-like sales were flat year-on-year and came in slightly below Ord Minnett’s expectations, the company has made meaningful progress in narrowing losses within its Specialty Brands and Direct Marketing division (SBMDL) and delivered greater-than-expected cost savings through debt refinancing.

Management stressed there is a ‘reset’ underway to position the company for future growth.

Outlook for Myer

Ultimately, the investment case for Myer depends on the success of integrating the Apparel Brands’ assets and executing a successful turnaround.

Management is focusing on completing its team build-out and executing revenue synergies, with further details expected at the company’s May strategy day.

Positively, Canaccord considers metrics around brand health are pointing in the right direction with active members rising by 6%, and the Myer one tag rate (the percentage of total sales associated with Myer one loyalty program members) at record levels. New member sign-ups also increased by 21%.

Both Canaccord and Morgan Stanley have Buy or equivalent ratings, with respective targets of $1.15 and $1.05, while the more cautious Ord Minnett has an Accumulate rating (one notch below Buy) and a target of 86 cents.

Views on Premier

Supported by a strong cash position of $268m, management indicated a willingness to expand the remaining portfolio.

Jarden retains its Neutral rating, noting significant uncertainty about the Smiggle and Peter Alexander overseas expansion, but assumes trends continue to improve.

Acknowledging material longer-term opportunity exists via the company’s unique, high margin brands, supported by a strong balance sheet, nearer-term the broker sees more attractive opportunities in Harvey Norman ((HVN)), Universal Store ((UNI)), and Temple & Webster ((TPW)) among ASX-listed retailers.

While Ord Minnett sees potential for improvement in Smiggle and M&A opportunities, this broker has lowered its target to $23.60 from $26.15 and downgraded to Accumulate from Buy.

Following Premier Investments’ interim results, two of the six brokers daily monitored by FNArena are yet to fully update their research.

The average target of the four who did respond is $27, suggesting around 33% upside to the $20.65 share price at the time of writing.

Outside of daily coverage, Neutral-rated Jarden and Goldman Sachs have targets of $21.70 and $22.55, respectively.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms