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Is the Premier Investments Limited share price in the buy zone?

Due to being caught up in a retail industry sell-off, the Premier Investments Limited (ASX: PMV) share price has fallen 15% year-to-date.

No doubt many investors will be questioning whether this puts the shares of the company behind the Smiggle and Peter Alexander retail brands in the buy zone.

Is Premier Investments a buy?

Despite the retail industry’s problems, I think Premier Investments could be a buy today.

There’s no getting away from the fact that trading conditions in the retail industry are weak. It seems as though every week a retailer downgrades its full-year guidance.

In fact, this month OrotonGroup Limited (ASX: ORL), RCG Corporation Ltd (ASX: RCG), Surfstitch Group Ltd (ASX: SRF), Automotive Holdings Group Ltd (ASX: AHG), and Sigma Healthcare Ltd (ASX: SIG) have all downgraded their full-year earnings guidance.

Why is Premier Investments different?

I believe Premier Investments has a few advantages over many of its retail peers. These include its highly popular niche brands, geographical diversification, and fast-growing online channel.

In my opinion the Smiggle and the Peter Alexander brands are leaders in their respective markets and lack any significant competition. I believe this should allow them to operate as normal without having to heavily discount products in order to compete. Which is great news considering how strong their margins are.

The Smiggle brand recently achieved global half-year sales of $134.7 million, up 26.4% on the prior corresponding period. Approximately 60% of these sales were derived from outside of Australia’s weak retail industry.

Pleasingly this is likely to increase substantially in the future as well. The aggressive roll out of Smiggle in the United Kingdom means that management expects $200 million in annual sales from that market by calendar year 2019.

A further highlight is its online channel. Online sales grew at an even quicker rate of 48% during the first-half, significantly outperforming the industry average. Management isn’t about to rest on its laurels and intends to invest further in its online platforms in order to reach $100 million in annual online sales by 2020.

Whilst a number of its other brands such as Jay Jays and Just Jeans may well get caught up in the weak retail environment, I feel the strength of its key Smiggle and Peter Alexander brands will more than offset any decline.

So at just a little over 18x trailing earnings and providing a trailing fully franked 4.2% dividend, I think Premier Investments could prove to be a solid long-term buy and hold investment.

Finally, here is another retail share with an even bigger dividend that I would consider buying today. Like Premier Investments, it has a growing international presence as well.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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