Premier in a league of its own

While Premier Investments’ retail businesses remain very cost-focused, its latest half-year results suggest Mark McInnes is shifting focus slightly towards growth.

Since McInnes joined Solomon Lew and took control of the Just Group portfolio nearly two years ago the emphasis has been very heavily, and quite successfully, on costs in an environment where retailers have battled, generally unsuccessfully, just to maintain sales and minimise the reduction in their earnings.

There’s continuing evidence of that cost discipline in the latest result. Overall costs rose only 2.2 per cent, with rental costs held virtually flat and ‘’other’’ costs of doing business reduced 18.8 per cent.

McInnes closed 14 stores and says he will close even more if landlords aren’t willing to renegotiate ‘’unsustainable’’ rents. He was one of the earliest of the retailers to challenge the assumption in the retail property sector that rents could continue to rise even as retailers’ sales and profitability fell.

Just Group did generate top-line growth – sales were up 2.5 per cent. It was probably no coincidence that it lifted its advertising and market spend substantially, from $4.8 million to $7.97 million, after earlier cutting it back heavily.

The combination of cost control and sales growth helped Just Group increase its gross profit and gross margin and deliver an impressive increase in pre-tax earnings of 14.7 per cent, to $52.6 million. Given the performance of the rest of the sector and the very difficult environment in which the retailers are operating the result is a standout.

The big differentiator for Just Group is that it owns all of its own brands. Another is that, in Peter Alexander and Smiggle, it has brands that it can grow and take offshore – and is taking offshore.

Those brands are adding stores in Australia and New Zealand and McInnes is also building a physical and increasingly profitable presence for Smiggle in Singapore, where it has 14 stores already. Just Group is also gearing up to enter the Japanese and Malaysian markets and is researching other markets.

With Just Group currently flying its Smiggle stock into Singapore, there is obvious upside as the chain expands and McInnes puts in place a more conventional supply chain for it, as he plans to do over the next financial year.

Both Peter Alexander and Smiggle are experiencing double-digit growth in sales, with Peter Alexander up 12.4 per cent and Smiggle 16.7 per cent.

The group’s performance, however, wasn’t driven just by the growth in those brands. Its Dotti brand grew sales 15.5 per cent with ‘’significant’’ profit growth and Portmans increased its sales 5.4 per cent. Just Group’s sales were down 2.2 per cent but its profit increased and Jacqui-E had a similar experience. The JayJays brand, where sales fell 8.7 per cent, is still in turnaround mode.

The other area where Just Group is generating growth is via its online strategy, which generated sales growth of 51 per cent. All its brands and stock-keeping units are online and Just Group is now rolling out mobile sites for the brands. Again its ownership of its brands is a major advantage in an online environment.

Just Group is the sole business (there is an investment in Breville Group as well) within Premier Retail, itself wholly-owned by Lew’s Premier Investments. Premier Investments reported profit growth of 20.7 per cent to $46.5 million for the half.

Within Premier Investments there is $316.7 million of cash and only $85.5 million of debt. Lew has previously conceded that he probably moved too early and paid more than he should have when Premier acquired Just Group in 2008 even as the retail environment continued to deteriorate.

This time he’s being patient, waiting for an opportunity to present itself either here or offshore. It hasn’t gone unnoticed that McInnes has been assembling a stock of very talented and experienced senior retailers in his team, providing management depth if and when Lew does decide to make another meaningful acquisition.