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Premier Investments Limited reports: Is it a buy at this share price?

Fast fashion and school children’s stationery retail conglomerate Premier Investments Limited (ASX: PMV) this morning reported its financial results for the 26-week period ending January 28 2017. Below is a summary of the results, with comparisons to the prior corresponding period where relevant.

  • Total sales up 7.1% to $588.6 million
  • Underlying earnings before interest and tax (EBIT) of $93 million, up 10.6%
  • Underlying EBIT margin up 0.5% to 15.8%
  • Group like-for-like sales up 2.1% on a constant currency basis
  • Smiggle’s global sales up 26.4% on H1 2016
  • Peter Alexander sales up 13.8% on H1 2016
  • Increased interim dividend of 26 cents per share, up 13%

Those were the highlights of the results although the Premier Investments share price is trading flat today after the company guided the market last month in some detail as to what to expect from the results.

The reason for the prior guidance was the weak trading conditions being experienced by retailers across Australia over January and February that has been flagged by other retail operators including department store giant Myer Holdings Ltd (ASX: MYR).

These weak trading conditions over 2016 contributed to once popular Australian and New Zealand retailers such as Marcs, David Lawrence and Pumpkin Patch going bust over the period due to rising competition and soft discretionary consumer spending.

Premier Investment’s recent achievements centre around the Australian and international growth of its Smiggle children’s stationery brand, with 272 stores now open across Australia, New Zealand, the UK, Singapore, Malaysia and Hong Kong. The group is aiming to deliver $200 million in annual sales in the UK by calendar year 2019.

Premier also operates high-street and discount retailers; Jacqui E, Portmans, Dotti, Jays Jays and Just Jeans, all of which posted mixed results in increasingly competitive retail environments.

Outlook

The group’s balance sheet remains one of its biggest strengths with $279 million cash in hand at the end of the period and an equity investment in renovated kitchen appliance business Breville Group Ltd (ASX: BRG) worth $218 million.

I sold my Premier Investments shares around 18 months ago on valuation grounds and in the belief that its strongest growth days were behind it. Today the shares sell for $13.75 and my impression remains that although this is a good quality retailer the best risk-adjusted returns may be behind it given the increasing competition and lofty valuation. Accordingly, I would rate the shares as a hold at today’s levels.

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