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Premier results for Premier Investments

Any bricks and mortar retailer that can generate 20% growth in net profit should be congratulated.

So it goes with Premier Investments (ASX: PMV), the owner of Just Jeans, Jay Jays, Smiggle and Peter Alexander, amongst others. The company reported a net profit of $46.5 million for the six months to January, a 20.7% rise over the previous year.

International sales growth surged by 51% as did online sales, while Peter Alexander grew strongly, increasing sales by 16.7%. Premier said that Dotti and Portmans also had outstanding sales growth, along with Smiggle Singapore, with Smiggle’s expansion into Japan and Malaysia beginning. Premier continues to roll out Peter Alexander and Smiggle stores.

Overall, same stores sales were down 1%, a substantial improvement over the previous period’s fall of 7%. The company’s hard line on high rents by landlords saw the closure of 14 loss-making stores, and Premier suggested more closures will occur if the rents expected by landlords were unreasonable.

The company’s balance sheet strength improved, with cash rising to $317 million, while debt fell $37 million to $86 million. Alongside its retail group, Premier also holds investments, primarily made up of 25.7% of Breville Group (ASX: PMV). That is currently valued at around $185 million, at Breville’s current price of around $5.50.

With cash and investments of around $500 million making up around half of Premier Investments market capital, speculation is rising around what the company might do with those funds. The rollout of Smiggle and other retail stores doesn’t appear to be consuming much of the company’s cash flow, leaving Premier to either return the funds to shareholders to consider acquisitions.

Breville and David Jones Limited (ASX: DJS) have both been touted as potential takeovers, but Breville’s market cap is over $750 million, while David Jones’ stands at $1.6 billion.  A takeover of either would likely require Premier to borrow from the banks or raise equity capital.

A smaller acquisition such as Specialty Fashion Group (ASX: SFH) or Noni B Limited (ASX: NBL) could be on the cards.

Foolish takeaway

With more than 1,000 stores, mainly in Australia, but rapidly expanding into Asia, Premier appears to be doing a lot right, with the financial results heading in the right direction.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in David Jones.

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