Premier Investments posts record 2013 profit

Brand manager defies retail conditions.

Although not directly comparable to department stores Myer (ASX: MYR) and David Jones (ASX: DJS)Premier Investments (ASX: PMV) manages multiple fashion related brands and its 2013 results are comparatively strong, especially if you consider that some of Premier’s brands are going head to head with new retail entrants such as Topshop.

Its 2013 highlights include:

  • Reported net profit of $174.5 million, partly due to the 25.7% stake in Breville Group (ASX: BRG) which is now equity accounted. This re-classification produced a one-off profit of $105.2 million.
  • Normalised net profit up 1.4% to $69.3 million; earnings per share are up slightly to 48.3c.
  • Full year dividend 38c fully franked. Franking credit pool now stands at $214 million.
  • Year-end balance sheet shows investment in Breville as worth $184.1 million. Current market value is approximately $286.7 million.
  • Internet sales up 37%; management is targeting 10% online contribution to total sales over time.
  • Employee expenses are up 6.5% and total 25.1% of sales.
  • Rental expenses remain steady at 21.3% of sales, despite new store openings.
  • Gross margin is now 62.3%, a small improvement.
  • Cash on hand is up $19 million to $313.2 million – retail debt reduced to $102 million.

Commenting on the results, chairman Solomon Lew said: “The retail environment in Australia remains challenging, however we continue to adapt by rejuvenating our core brands, growing uniquely positioned brands like Peter Alexander and seeking opportunities for further offshore expansion of Smiggle.”

The brands

Peter Alexander and Smiggle are the high growth brands in the portfolio, with 2013 sales up 17.7% and 14.5% respectively. Peter Alexander recently signed an exclusive concession agreement with Myer. Dotti and Portmans demonstrated positive sales growth and Jacqui E was slightly negative. The two brands most affected by retail conditions were Jay Jays (down 11.1%) and Just Jeans (down 3.3%).

International expansion

Smiggle (a children’s stationer) has established 17 stores in Singapore, all of which are highly profitable. Plans are in hand to open six to eight Smiggle stores in Malaysia, with the first expected in early 2014. Japan has been put on hold due to complexities in setting up and importing several products from China.

A major Smiggle expansion is planned for the UK, with the potential for 200 stores to be established over the next five years. Individual stores are expected to be profitable in year one and the UK move profitable by 2015. The first five to eight stores are planned to be operating by July 2014. If successful, the UK template will serve as an introduction into Europe.

Premier Investments also intends to upgrade or build new logistics facilities in order to support expected brand wide growth.

Foolish takeaway

With seven diverse brands, Premier Investments is an interesting situation in the retail market. At $8.40, it is reasonably priced at 16 times projected 2014 earnings of 52c per share. Management is very astute and alive to retail opportunities. The current cashbox is sufficient to fund growth plans or new acquisitions. In this Fool’s opinion, Premier Investments is a solid medium-term buy.

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Motley Fool contributor Peter Andersen owns shares in Premier Investments and David Jones.

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