Why is the Premier Investments (ASX:PMV) share price on the rise?

The Premier Investments Limited (ASX: PMV) share price is on watch after delivering record results in 1H21

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Premier Investments Limited (ASX: PMV) was one of many ASX retail shares that bounced back strongly from COVID-19. The company announced a record half-year result today, highlighting the resilience of its brick and mortar business and significant growth in online sales.

The Premier Investments share price is currently ~8% higher than its pre-COVID high of $21.30. However, it had a relatively flat year-to-date performance, including a 36 cent dividend paid out on 28 January. 

At the time of writing, the Premier Investments share price is trading at $23.67, up 1.94%. 

Premier Investments share price up as profits soar 

Premier Investments delivered global sales of $784.6 million, up 7.2% on 1H20. This growth was driven by record Peter Alexander sales of $207.7 million, up 43.4%. Its online sales are also gathering momentum, up 61.3% to $156.7 million, representing 20% of global sales. Strong sales were further supported by an uplift in margins, with gross margins up 286 basis points to 65.4%. 

Strong sales backed by improved margins translated to record earnings before interest tax (EBIT) of $237.8 million. This was up 88.5% and a net profit after tax of $188.2 million, up 88.9%. 

Key growth drivers in the first half 

Premier Investments made a critical decision in mid-2020 to invest in increased inventory. In particular, for the key summer period said executive director and Premier Retail CEO, Mr. Mark McInnes. This decision ensured that the business was in-stock to meet pent-up consumer demand. Consequently, this resulted in significantly higher sales and gross margin in 1H21. The business has leveraged the success of increasing inventory into 2H21, maintaining the sale and margin expansion momentum. 

Peter Alexander has emerged as a major revenue contributor to the business. The strategic decision to be in stock in the first half has enabled the brand to deliver increased full-priced sales with much less promotional activity. This has allowed the company to deliver higher margins in 1H21. Premier Investments notes that sales and margin growth momentum has continued into the first seven weeks of 2H21. Additionally, total sales are up 46% on the prior corresponding period. 

Premier Investments’ five iconic apparel brands (Just Jeans, Jay Jays, Jacquie, Portmans, and Dotti) delivered solid like-for-like sales growth of 18.5% in a difficult macro trading environment. The company believes that each of these brands have a strong and distinctive competitive market position and are well-positioned to deliver future growth.

Strong balance sheet with dividends

Premier Investments’ cash on hand has soared to $497.2 million at the end of 1H21, up from $297.5 million in 1H20. Its cash position is significant in proportion to its $3,746 million market capitalisation. The company has also announced an interim dividend of 34 cents per share or an interim yield of approximately ~1.46%. 

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. 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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