Why Premier retailers are top of the shops

While most Australian retail brands are struggling to maintain their sales bases, Premier's retailers are opening up new stores and expanding into foreign markets.

Solomon Lew’s Premier group has something -- in fact two somethings -- that any retailer would give their right arm for. In Smiggle and Peter Alexander, Premier has two unique growth brands.

Within the Premier interim result today, the sales growth being generated by those two brands was striking. Peter Alexander grew its sales a remarkable 23.3 per cent and Smiggle’s sales were up 15.7 per cent.

Where most domestic retail brands are under pressure and most retailers are struggling just to maintain their sales bases, Premier is in the enviable position of being able to invest in the growth of its two star brands, opening new stores and, in Smiggle’s case, adding geographies to build on its fastest sales growth in four years.

Premier opened five new Smiggle stores and five new Peter Alexander stores in Australasia in the half, while adding another Smiggle store to the 16 it had in Singapore. It also launched the brand in the UK, where it now has four stores open, expects to have 10 operating by mid-year and as many as 20 by Christmas.

The performance of those two brands helped the larger retail portfolio lift sales by 5.3 per cent and like-for-like sales by 4.4 per cent. The only brand not to generate positive sales growth was Jay Jays, where sales were 5.8 per cent lower for the half, although Premier said second-quarter like-for-like sales growth was positive.

With Premier Retail earnings before interest and tax up 9.2 per cent to $61.5 million, its chief executive Mark McInnes has been able to invest strongly in his supply chain.

The development of a national distribution centre will impact second half earnings by $3m to $4m, with a similar one-off cost related to the establishment of the Smiggle business in the UK.

The distribution centre will support the group’s online ambitions, which are being realised rapidly.

The group’s online sales rose 24 per cent in the half, driven by 41 per cent increases in online sales by the Just Jeans and Portmans brands and a 34 per cent increase from the Dotti brand. Premier says its online channel is “very profitable”. Premier is almost uniquely placed among Australian retailers to leverage its brands online because it owns all its own brands.

One of the hallmarks of McInnes’ career has been his ability to control costs. Despite a 6.7 per cent blowout in employee expenses, driven by the impact of the Fair Work modern award process, Premier’s cost-of-doing-business as a proportion of sales still fell 89 basis points to 49.6 per cent.

Notably, despite the expansion occurring with the two growth brands, rent as a proportion of sales fell 12 basis points to 19.9 per cent as McInnes closes unprofitable stores within his more mature brands and continues to take a tough stance in negotiations with landlords.

The larger Premier Investments group grew its net profit by 12.1 per cent to $52.1m and is sitting on $318m of cash and an investment in Breville that cost it about $189m. It has a market value of $319m.

Lew, while continuing to edge Premier’s dividends up, has been content to retain that cash. It’s a pretty obvious sign that he’d prefer to invest it than return it to shareholders.

While Lew is inherently conservative, should he want to make a major move, he has the capacity to fund it. With the team of very experienced retail executives he and McInnes have assembled, he also has the management capabilities to bring to bear on any retail acquisition.

He’s no doubt monitoring the merger manoeuvring between Myer and David Jones (which he appears sceptical of) very closely.

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