Lending Association

Lew to spin off best chains in Premier Investments

Solomon Lew wants to spin off the two best retail chains in Premier Investments (ASX:PMV) next year, leaving behind a group of weakly performing businesses.

Lew revealed in Premier’s half year results and report on Tuesday that he will separate pyjamas retailer Peter Alexander and children’s stationary brand Smiggle into ASX-traded entities in their own right from next year (though don’t rule out a trade sale if the price is right).

Lew outlined last August he was evaluating breaking up his retail empire, which spans a portfolio of 1100 bricks and mortar stores and more than a dozen e-commerce sites.

In Tuesday’s announcement he explained that “The ongoing strategic review has identified that the potential demerger of Smiggle and Peter Alexander is likely to maximise and accelerate the growth opportunities for these two brands over time.

“We are therefore working towards a demerger of Smiggle by the end of January 2025 and exploring a demerger of Peter Alexander in calendar year 2025.”

The news saw Premier shares jump 9 per cent at the opening, but the enthusiasm cooled a little. Shares fell back to be up around 2 per cent by 10.30am.

For the six months ended 27 January, Premier reported a 2.8 per cent decline in sales to $879.5 million (this was still the second highest sales performance in its history after the 2023 record).

Premier’s total EBIT dipped a tiny 0.3 per cent to $245.7 million for the half, with most of this coming from Premier’s retail business, which recorded first-half EBIT of $209.8 million.

This was higher than its December guidance of approximately $200 million thanks partly to a record Boxing Day performance.

This stronger performance saw the company’s board to declare a fully franked interim dividend of 63 cents per share.

While this is down from 70 cents per share from the prior corresponding period, that included a special dividend. So, on a standalone basis, this dividend is up 16.7 per cent year on year and is a record payout from the company.

Premier’s half year report revealed that Smiggle and Peter Alexander were the best retail performers, compared with other parts of the business such as Just Jeans and Portmans.

Smiggle will be first to go with a spin-off (or sale) planned for the end of January, 2025 — that’s the end of the first half of Premier’s 2024-25 financial year. Peter Alexander will go later in calendar 2025.

Peter Alexander did best of all the chains, delivering another record sales result of $279.3 million — an inflation-beating rise of 6.7 per cent increase on the prior corresponding period.

Smiggle though saw a 3.6 per cent decline in global sales to $183.9 million for the half, which was said to come from 51 fewer stores.

But Premier said it wasn’t a bad result as it came in a challenging discretionary retail environment, with the Smiggle customers particularly exposed to increased cost of living pressures in all global markets.

The weak performance from the company’s five apparel brands (Just Jeans, Jay Jays, Portmans, Dotti and Jacqui E) makes it easy to understand why they are not being sold or spun off. Collectively their sales of $416.3 million were down 8.1 per cent on last year’s record half.

As well, Premier indicated it would keep its 26 per cent stake in Breville, now worth $970 million (in Premier’s books at $344 million) and the near 30 per cent stake in Myer (worth $159 million, against cost of just over $151 million).

Buried in the report was two key selling points to help the early spin off or sale of Smiggle.

These were expansion moves in the Middle East and in Indonesia over the next decade.

“Smiggle’s Middle Eastern wholesale partner successfully opened their first standalone Smiggle stores during 1H24, with seven stores opened before Christmas, “Premier revealed in Tuesday’s update.

“Smiggle expects to have over 17 standalone stores trading by July 2024, showing encouraging progress under the Middle Eastern wholesale agreement to open 60 freestanding stores within the next 10 years.”

And, following the successful launch of the Middle East wholesale agreement, Premier said Smiggle has reached agreement with an existing wholesale partner to open standalone stores in Indonesia.

“These freestanding stores will be in addition to the partner’s successful ‘store-in-store’ arrangements, and provides for the opening of over 100 Smiggle stores in Indonesia over the next 10 years,” Premier said.

It wouldn’t surprise to see interest in Smiggle from either partner in these expansion deals.

And to help the sale or spin off of Peter Alexander, Premier said it intends to launch the brand into the United Kingdom with the first two stores and dedicated UK website planned to open before Christmas this year.

“Peter Alexander has identified up to ten new UK store opportunities in the short term as part of the initial launch plans, Premier revealed.