Premier Investments ready for reopening

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This story features PREMIER INVESTMENTS LIMITED and other companies. For more information SHARE ANALYSIS: PMV

Optimism prevails at Premier Investments, which is poised for an expected increase in customer numbers as stores reopen and a new year looms

-Brands will benefit from store reopening and online expansion without the need for a large investment
-Will Premier Investments earnings growth be affected by declining margins?
– Or have retail margins increased anyway due to increased online penetration?

By Eva Brocklehurst

Despite closures affecting store sales throughout FY21, Premier Investments ((PMV)) remains bullish in FY22, stocking up on inventory in anticipation of customers who will congregate in FY22. reopening of stores.

FY21 results saw record sales for the Peter Alexander and apparel brands as well as online, despite the lockdowns. Still, the impact of school closures was severe in the case of Smiggle where FY21 sales were down -16.8% globally.

By mid-May, all stores in Europe had resumed operations and Smiggle saw double-digit like-for-like sales growth during times when the school was in operation. Like-for-like sales for FY22 are currently up 69% in the UK, 64% in Ireland and 131% in the Middle East wholesale channel. Australasian activity should therefore recover in a similar fashion.

In the first seven weeks of FY22, Premier’s global sales fell -9.5%, largely due to lockdowns, while strong online sales and a rebound from Smiggle Europe provided a counterpoint. Brokers evaluate the company is well positioned for such an uncertain time due to online capacity, strong inventory and cash balance.

While the stock is trading at a premium to its discretionary peers, Citi considers this reasonable as key brands will benefit from the reopening and growing adoption of online shopping without the need to significantly reinvest.

Macquarie also estimates that a net cash balance of $ 376.5 million will support distribution center expansion plans in 2022, while the current macroeconomic environment offers opportunities.

Bell Potter expects a rebound to occur in Australasia in FY 22 for clothing brands as well as Smiggle. The five apparel brands recorded comparable sales growth of 18.7% in FY21. Peter Alexander outperformed, with like-for-like sales up 34.7%.

Premier has consistently exceeded Morgan Stanley expectations over the past 12-18 months, thanks to solid execution. Still, earnings growth in FY22 could be compromised by falling demand and normalizing margins, suggests the broker, as the change in CEO adds even more uncertainty.

Store closures

Goldman Sachs highlights the impact of one-time items as well as store closings on FY21 earnings and expects the first half of FY22 to be moderate due to closures in Australia. The broker is concerned about the outlook for Smiggle, amid permanent store closings, as well as Peter Alexander’s ability to cycle past stellar growth rates.

Premier has closed 46 stores in the past 12 months and 158 stores in the past seven years, Macquarie points out, as it focuses on the profitability of individual stores due to increasing customer preference for shopping online. .

The broker also notes that more than 75% of the global store network is either on hold or with leases expiring in less than 12 months, providing flexibility to review the network.

Store-level profitability drives decisions about optimizing the physical store network and Credit Suisse agrees that as online sales generate a higher profit margin, and assuming the Internet shift continues, there could be further downward pressure on rents. Still, it won’t be clear whether high promotional activity affects in-store commerce until the second quarter.

Margins

Either way, Goldman Sachs suspects gross profit margins are likely to decline as the promotional environment normalizes throughout 2022. Macquarie also expects FY 21 to turn out to be a year. record in terms of margins, given the concessions obtained by the company, and expects margins to normalize in FY22 with earnings (EBIT).

Gross margin was 64.3% in fiscal 21 and resulted in a 25.1% increase in gross margin to $ 927.9 million. Credit Suisse expects a return to pre-pandemic gross margins in FY22, assuming a margin advantage from the resumption of sales to Smiggle is offset by promotional activity in apparel.

Ord Minnett predicts a 50 basis point increase in gross margin in the first half, slowing down over the long term, and further notes that rents were the main driver of margin expansion during the year. 21, while Citi says retailer EBIT margins have stepped forward to the better side of pre-pandemic levels due to increased penetration of online sales and renegotiated rents.

Management’s argument is that the rent should come down to preserve in-store profitability and therefore the broker expects Premier to keep around 380 basis points of EBIT margin before fiscal 23.

Bell Potter sees Peter Alexander as unique in the market and positioned to expand overseas, although he recognizes a recovery in Smiggle’s management priority list. The broker, who is not one of the seven monitored daily on the FNArena database, switches to Buy from Hold with a target of $ 31.25, evaluating that a rebasing of EX22 earnings is being considered. account and robust growth should pick up from FY23.

Goldman Sachs, who is also not in the Seven, is on the other end of the spectrum, maintaining a sell rating with a target of $ 23.40. The broker believes the stock is trading at a premium to its peer group based on growth prospects and excluding the market value of the associates – Breville Group ((BRG)) and Myer ((( MYR)).

The database sort of has a bet each way with three buy odds and three maintain odds. The consensus target is $ 30.20, suggesting a 3.6% rise from the last share price.

See also, Premier Investments: Everything about the margin June 16, 2021.

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