Retail powerhouse Premier Investments has joined Myer and David Jones in taking action against landlords over unfair and "unrealistic" lease terms as the Brexit uncertainty affects its expansion plans in the UK.
The Australian-based retailer, whose brands include Just Jeans, Smiggle, Peter Alexander, Jay Jays and Dotti, told investors at its full-year results on Friday it had no qualms about walking away from leases, even in high-profile locations.
Boris Johnson and Brexit have caused Premier to crack down on its UK rents.Credit: Adam McLean
Chief executive Mark McInnes said while Premier was not in the business of closing stores, it wouldn't hesitate to do so in cases where landlords refuse to give the company the same rent deals offered to competitors or international retailers.
"Many landlords have offered capital incentives and lower rent to attract international fashion companies and we have been asking for exactly those same capital deals and rental deals," he said.
"It's not our objective to close stores, but if landlords don't provide realistic rents ... we will."
Premier's stance follows similar threats from department store giants Myer and David Jones, which are currently renegotiating leases to shrink store sizes and cut costs.
It's not our objective to close stores, but if landlords don't provide realistic rents...we will.
Chief executive Mark McInnes
Mr McInnes was also confident the company's burgeoning online division would pick up the slack for any sales lost through its lease exits, saying not only were online sales up 31.7% to $148.2 million, but they were "much more" profitable than brick and mortar sales.
Premier's strict action on leases has resulted in 35 store closures over the last financial year but has also helped the company achieve its eighth straight year of earnings growth, with net profit after tax (NPAT) for the year up 27.7 per cent to $106.8 million.
Overall sales were up 7.5 per cent to a record high of $1.27 billion, and like-for-like sales improved 4.2 per cent. Premier shares soared 16.2 per cent, closing at $18.26.
Brexit and Boris bite
Economic and political instability from Brexit has forced the company to re-assess its retail leases across its 145 Smiggle stores and concession stands in the UK, with Premier ending a number of lease agreements early in order to renegotiate cheaper rents.
This incurred a one-off cost of $25.9 million, with directors saying the UK retail environment was "distressed".
Mr McInnes said while it was difficult to predict when conditions might improve, he was confident the UK's economy would recover in due course.
"Great Britain has been through many, many trials and tribulations in the last hundred years, including a couple of wars," he said.
"I'm sure when all this mess is over it will bounce back."
Despite the Brexit-induced issues, Smiggle achieved record global sales for the year of $306.5 million. Sleepwear brand Peter Alexander also reported record sales, up 13.3 per cent to $247.8 million.
Premier chairman Solomon Lew dismissed claims Australian retail was recessionary, saying the company was outperforming in a "failing or struggling" market despite closing 35 stores.
Premier Investments chief executive Mark McInnes and chairman Solomon Lew.Credit: Eamon Gallagher
"If you look at our sales growth, closing stores is not hurting us," he said. "Obviously we're doing something right. Our recipe is a lot better than the competitions."
However, the company said it had still seen no indication of consumers spending their income tax cuts, despite economists' predictions Australians were opening their wallets.
Despite his 10 per cent stake and historical opposition to Myer's operations, Mr Lew remained largely quiet on the department store, saying only he was "not sure" on the company's strategy and could not see any "green shoots" despite the company's profitable year.
Macquarie analyst Shaun Weick labelled the result as "strong", backing up Lew's claim Premier's brands had been outperforming a challenging retail market.
Premier will deliver shareholders a record final dividend of 37 cents, taking the full-year dividend up 12.9 per cent to 70 cents.