Premier Investments feels the pinch of weak retail

Premier Investments feels the pinch of weak retail

Premier Investments has been one of the bright lights in the retailing sector with two of its brands, Smiggle and Peter Alexander, growing well above the industry average. However, its full year results, released yesterday, show that even PMV is feeling the pinch of a weak retail industry.

While Smiggle and Peter Alexander sales were up 28.8% and 14.0% respectively, and Just Jeans grew 1.5%, all of its other brands experienced declining sales relative to the prior financial year including Jay Jays, Dotti, JacquiE and Portmans. The sales declines come despite Australia’s retail sales data being relatively strong over the past six months.

Australian consumers appear to be shifting away from traditional Australian brands and towards newer, international brands making it very difficult for some of these retailers. The imminent arrival of Amazon also has the sector very worried as Amazon is being blamed for putting several US retailers out of business, most recently Toys R Us.

Solomon Lew, Chairman of PMV, has spoken about the 11% stake PMV bought in Myer (MYR) last March. Since then, MYR shares have fallen by 37% and reduced the book value of the holding by approximately $34m. While the MYR holding is considered strategic, Lew claims that he just wants a seat at the table rather than intending to make a takeover offer for the company but his comments suggest he isn’t happy with the way MYR is currently run. MYR has been running almost perpetual sales trying to clear stock that in some cases is several years old. In any case, we expect Lew to make some kind of move with respect to MYR in the near future.   

PMV stock closed down 2.5% yesterday as the market clearly wasn’t impressed with the company’s results. The disappointment most likely came from the larger than expected declines in the weak performing brands rather than any problems with Smiggle or Peter Alexander. PMV is aggressively opening new stores for both of these brands such that Smiggle is growing to become the biggest brand for the company, taking that position from Just Jeans.

Rivkin doesn’t hold PMV stock in any portfolio but we nevertheless like to cover it as an example of a solid performer in an otherwise weak sector. Notwithstanding the market disappointment over the recent results, the performance of Smiggle and Peter Alexander are examples of what it takes to succeed in retail in the current environment.

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