‘Rudderless’ Smiggle Dogs Premier Investments

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            [1] => ((BRG))
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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

While a stripped-down Premier Investments’ flagship brand Peter Alexander continues to perform well, Smiggle remains a problem child.

• Premier Investments’ AGM brings weak guidance
• Peter Alexander sales continue to grow
• Smiggle sales remain weak, and still no CEO
• Value following share price weakness?

By Greg Peel

Premier Investments’ ((PMV)) wholly owns sleepwear retailer Peter Alexander and kids’ school supplies retailer Smiggle, has a 25% stake in home appliances manufacturer Breville Group ((BRG)), plus strategic property investments.

When the retailer released its FY25 (July year-end) results back in September, Peter Alexander A&NZ was the standout performer, Peter Alexander UK posted a loss but the first stores had opened only ten months earlier, hence upside down the track was expected, while Smiggle was suffering falling sales.

Brokers agreed at the time Smiggle’s core customers, being young families, had been among the most impacted by cost-of-living pressures. But there was also agreement consumer sentiment was on the mend and a Smiggle turnaround was possible, albeit the appointment of a new leader of the business was considered critical to get the most out of the brand.

Investor sentiment towards Smiggle was increasingly shifting toward structural concerns, although management maintained the issues are execution-related – understandable, said Ord Minnett, given the brand had lacked a CEO for some 15 months.

Three months on, and Premier Investments’ AGM revealed nothing at all had changed. Peter Alexander has continued to be the standout while Smiggle still struggles, still without a CEO.

Sleepover

Premier Investments announced first half FY26 guidance for underlying earnings of $120m at the AGM, compared with consensus forecasts at $133m. Smiggle drove the softer-than-expected guidance, with the UK continuing to underperform.

The good news at least is that now the divestment of Premier’s plethora of apparel brands to Myer Holdings ((MYR)) has been completed, a twelve-month on-market share buyback of up to $100m has been announced, which is expected to commence post the first half result release in March.

Pyjamas, it would seem, are all the rage. Peter Alexander delivered record sales across Black Friday and Cyber Monday. The brand is enjoying an expanding total addressable market (TAM), UBS notes, (men’s, kids, accessories and plus-size) which requires an increasing store size, and an upgraded perception by consumers from a functional product to a “gifting brand”, providing a basis for sustained growth.

Smiggle, in contrast, has been unable to expand its TAM, UBS notes, given a tight age range (4-11 years old and possibly younger) and new product development less effective than history, while its core purchasers (young families) are facing rising cost of living pressures.

Are they?

Management suggested at the AGM “discretionary spending remains under pressure with consumers cautious due to ongoing cost-of-living impacts”. Macquarie points out ABS data indicate monthly spending grew 3.5% month on month (6.4% year on year), and Overall Discretionary improved 1.6% month on month (5.1%) in October.

Further, Macquarie’s High Frequency Consumer Data also indicate discretionary consumer spend is not declining. The broker thinks the quantum of Smiggle’s expected decline suggests continuing product weakness and market share loss.

Macquarie also questions whether Peter Alexander is still maintaining the circa 9% sales growth indicated at the FY25 result, with the broker’s forecasts now expecting a moderation to 5% growth for first half, implying a deterioration over September-November.

Pens Down

Smiggle UK drove the soft guidance, with weaker than expected sales post the northern hemisphere back-to-school period. The UK comprises around a third of Smiggle’s store footprint. The weak sales outlook suggests to Morgan Stanley recent store consolidation in the UK has not been sufficient to stem underperformance.

Premier Retail first half underlying earnings guidance is down -7.3% year on year, and based on UBS’ sales forecast implies a 26.0% earnings margin, down -226 basis points year on year.

Rising cost of doing business to sales (up 207bps to 41.5%), due to the weakness in Smiggle sales, is the key driver of margin compression, UBS notes.

Compounding the weak sales environment, the company continues to search for a managing director. The appointment of a new Smiggle CEO is the catalyst for some of these challenges to be addressed, UBS reiterates.

Premier announced Georgia Chewing is now interim COO of Smiggle, in addition to her eCommerce & Marketing role at Premier Retail (Premier Retail is basically Peter Alexander/Smiggle).

Morgan Stanley doesn’t expect a meaningful recovery in sales until a new managing director joins, which could potentially take up to twelve months.

In the meantime, Macquarie describes Smiggle as “rudderless”.

Christmas will clearly be critical for Peter Alexander, while the upcoming A&NZ back-to-school period will be make-or-break for Smiggle.

Value at the Price?

Weak first half guidance at the AGM saw Premier Investments’ share price plunge -16% on the day, to be down -52.6% in 2025 to date. UBS notes this compares to an 18.7% gain for the ASX Small Ordinaries in the same period.

Brokers have slashed their earnings forecasts and price targets (having done already exactly that in Q1 this year).

Macquarie believes the market has now priced in zero earnings for Smiggle, with the Premier Investments’ valuation effectively reflecting the value of its Breville Group stake ($6.93 per share), and Peter Alexander ($9.24 per share).

Macquarie nevertheless re-iterates its Neutral rating, looking to the next disclosure of Peter Alexander’s sales performance to gain confidence that earnings weakness is contained only to Smiggle.

Macquarie’s target falls to $16.20 from $20.80.

Citi’s earnings downgrades mostly account for lower margins in Smiggle given operating deleverage on weak sales. Citi retains a Neutral rating and lowers its target to $16.70 from $24.00.

The revised target price factors in the earnings revisions as well as higher discounts in Citi’s PE relative valuation (now a -40% discount to ASX Industrials) and sum-of-the-parts (now a -25% discount to peers) given the heightened earnings uncertainty with respect to Smiggle.

A more circumspect UBS retains a Buy rating despite the challenged Smiggle (which drove the broker’s significant earnings downgrades) and start-up losses in Peter Alexander UK.

The strong core Peter Alexander A&NZ business, the extent Breville is underappreciated within its valuation and significant share price weakness make the risk/reward attractive, in UBS’ view.

UBS cuts its target to $19.00 from $24.00.

With underperformance in the UK and the ongoing leadership search, Morgan Stanley sees significant uncertainty for Smiggle’s outlook.

This broker cuts its average multiple on the group from 20x to 17x reflecting the greater level of uncertainty, though continues to view the operational business as attractive on a sum-of-the-parts basis, based on current trading (PE 10x) when backing out the value of the investments (i.e. Breville).

Morgan Stanley sticks with an Overweight rating, cutting its target to $20.60 from $24.00.

Jarden believes Premier Investments remains well capitalised, with strong brands and long runway for international growth, which is not reflected in the current multiple.

Jarden maintains a Neutral rating, with a revised target of $16.90, down from $21.30, with confidence in Smiggles’ future growth and Peter Alexander UK key for a re-rate.

Jarden estimates the operating businesses are trading at an implied enterprise value to earnings multiple of less than 7x earnings.

Bell Potter (Buy; target $26.50) and Ord Minnett (Buy; $23.40) are yet to update post the AGM.

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