The chances of Premier's Solomon Lew and his board getting the much-discussed demerger plan for the company back on track depend on whether the board of department store chain Myer can be convinced to do a deal on a group of retail brands that are, frankly, a little under the weather.
Investors were not convinced yesterday, sending shares down more than 10%.
The scepticism is understandable—weak trading both domestically and offshore has blown a hole in the carefully constructed series of deals. Smiggle, which was supposed to be the star brand for Premier in the reshuffle, is now a question mark.
This has left the much larger Peter Alexander (compared to Smiggle) as Premier’s star performer, thanks to a record sales performance in 2023-24.
So much so that Premier’s statement on Wednesday about the merger emphasised Peter Alexander as the first option. The company still sees merit in a split involving either Peter Alexander and/or Smiggle, although earlier in the year, Smiggle was the priority.
Adding to the challenges, Premier also lost the CEO of Smiggle in somewhat controversial circumstances, which alone would likely have delayed the breakup plan, even if sales growth had been maintained.
On Wednesday, Premier placed the focus on a deal with Myer to buy its 'non-core' apparel group, which includes Jay Jays, Just Jeans, Dotti, Jacqui E, and Portmans.
Since Premier owns a minority stake in Myer, any deal will need to be delicately negotiated. Pricing will have to be as neutral as possible, especially since these chains are currently underperforming.
Premier’s five apparel brands reported a 6.4% drop in sales, down to $790.7 million for the year ending in July. The previous year saw a record, as consumers emerged from pandemic restrictions and returned to physical stores.
A new customer loyalty program across all five apparel brands will launch in October. The existing program, currently limited to Just Jeans customers in Australia, was launched in 2006 and has 1.8 million members.
This loyalty program appears to be part of an effort to 'scrub up' the five chains, making them more attractive to consumers and, hopefully, to Myer (and its investors).
Premier noted a better performance in the second half of the fiscal year. "In 2H24, the Apparel Brands showed improved momentum, with sales down 4.5%. Continuous improvements in product ranges and sourcing, combined with a relentless focus on inventory productivity, delivered better 2H24 gross margins compared to 2H23."
The brands will begin unveiling new and improved store designs in the first half of 2025 to enhance the in-store shopping experience. Just Jeans and Jacqui E will introduce their new designs in November 2024, while progress continues on new designs for Dotti, Portmans, and Jay Jays.
This investment in upgrading the chains could be seen as a normal response to declining sales and the outdated look of many stores. However, it might also be viewed as an effort to polish the brands for Myer.
Smiggle’s weak sales performance was clearly a disappointment for Premier. The 7.4% drop, down to $296 million, was too significant for Lew and his managers to handle in any spinoff campaign.
The controversial departure of Smiggle's former CEO, who left for jewellery chain Lovisa, was obviously problematic and a contributing factor to Premier’s change of heart.
Premier explained the sales decline as a result of challenging global retail conditions, with Smiggle’s customer base particularly exposed to rising cost-of-living pressures in all major markets.
Interestingly, Smiggle's sales have fallen below their 2019 pre-pandemic levels, which is likely a concern for Premier.
On the other hand, Peter Alexander’s strong performance makes it easier to see why its spinoff or sale may come sooner rather than later.
Peter Alexander recorded its first year of over $500 million in sales, achieving $508.6 million, up 6.2%. The record result was driven across all product categories: womenswear, menswear, children’s wear, plus-size, and gifting.
Peter Alexander is clearly a growth story, not only from the sales data but also from Premier’s ambitions. Four new stores will open, and eight others will either relocate or expand in Australia and New Zealand.
The brand will enter the UK market within the next two months, with the first three UK stores and a dedicated UK website set to open by November. The stores will be in prime London shopping centres (Westfield London, Westfield Stratford, and Kent Bluewater).
Premier has also identified up to ten additional UK store opportunities in the short term as part of its initial expansion plans.
Up until recently, Smiggle had experienced a successful expansion in the UK, but it has since cut back on store numbers in what looks like a restructuring and cost-cutting effort.
