As Premier Investments’ apparel brands sales and earnings fall, Myer considers buy-up

Myer is contemplating buying an apparel portfolio from Solomon Lew’s Premier Investments just as leaked documents show sharply declining sales and earnings at these fashion brands.

Portmans, one of Premier Investments’ outlets, n Sydney CVD’s Pitt St Mall,

Major fashion brands owned by billionaire Solomon Lew have been hit by plunging sales and lower earnings due to an economic downturn, sparking a fresh challenge for new Myer boss Olivia Wirth as she weighs a buyout deal for the retail businesses.

Leaked budgeting and sales documents flowing from the due diligence process now under way between Myer and Mr Lew’s Premier Investments, and seen by The Australian, show all of the apparel brands within Premier – Portmans, Just Jeans, Dotti, Jay Jays and Jacqui E – have suffered negative sales growth and collectively are millions of dollars behind their budgeted or projected earnings targets.

According to the documents, Portmans recorded a 10 per cent fall in sales for the winter half to $68.043m, putting it well behind its budget target of just over $75m in sales.

Just Jeans (the largest of the five apparel brands) booked a 0.4 per cent sales fall to $136.326m. Jacqui E had a sales drop of 8.3 per cent to $33.381m to place it well behind its budget while sales at Jay Jays for much of the first 24 weeks of calendar 2024 were down 4.8 per cent to $69.2m, or 4.7 per cent behind budget.

The apparel brands are believed to account for the majority of the almost $800m in goodwill and brands value sitting on Premier Investments’ books – the bulk of which would shift to Myer’s accounts if it agrees to buy the division from Mr Lew, and which could face impairments and writedowns if woeful retail trading conditions continue.

The Premier Investments apparel brands’ internal financial statements also paint a picture of struggling earnings in the face of the general downturn among fashion chains, and show that the apparel brands’ collective gross profits are sluggish at best – in many cases, individual brand profit performance is going ­backwards.

Premier Investments chairman Solomon Lew and interim chief executive John Bryce.

In particular, gross profit at Jay Jays, Jacqui E and Portmans is down about $5m, according to the leaked documents, and it is believed the apparel brands’ earnings could have been as much as 25 per cent weaker through parts of the second half of 2024.

The documents reveal that at one stage in the second half, Portmans was as much as $5.7m or 14.8 per cent behind budget, and Jacqui E almost $2m or 10.3 per cent behind gross profit budget.

In total, at one point in trading during the winter half, the apparel brands were in total $8.9m behind budget compared with where management had hoped gross profit would be.

Collectively these apparel brands – which Myer is interested in buying from Mr Lew for hundreds of millions of dollars via the issue of Myer shares – are tens of millions of dollars under budget for the June half, as deteriorating consumer sentiment and a discretionary spending drought savages the retail sector.

It is these brands, now struggling to report sales and earnings growth for parts of the second half of 2024, that Myer is considering buying from Premier Investments to help broaden the retailer beyond its traditional department store model and into standalone fashion and apparel stores.

The acquisition would give Myer an expanded presence in the fashion sector through the collection of apparel brands as well as more than 700 stores. The most recent full-year accounts for Premier Investments report goodwill and brands worth more than $800m, of which the majority is believed to be to attached to Portmans, Just Jeans, Dotti, Jay Jays and Jacqui E. A smaller amount is linked to Premier’s high-growth chains Smiggle and Peter Alexander.

However, Ms Wirth – the former Qantas loyalty chief who was appointed Myer executive chairman and chief executive in March – is confident in the long-term prospects of the Premier Investments apparel brands and believes the “bare bones” of the brands and its pedigree of success and strong profitability – driven by Mr Lew and former chief executive Mark McInnes – ensure any softening in sales and profitability will be short lived.

Jay Jays is one of the Premier’s brands that Myer is interested in buying.

Ms Wirth and her team also believe there is significant opportunity to expand Myer’s highly successful Myer One loyalty scheme to include Portmans, Just Jeans, Dotti, Jay Jays and Jacqui E. This would help expand Myer One beyond its current 4.3 million active members with millions of shoppers who also frequent the Premier Investments apparel brands.

Meanwhile, if Mr Lew is able to pull off the deal to sell the apparel brands to Myer, this will leave his Premier Investments with the better-performing Smiggle and Peter Alexander brands as well as a large stake in kitchen appliances maker Breville (worth almost $1bn), industrial and office property, $478m in cash and $338.1m in franking credits.

The next stage of Mr Lew’s refashioning of Premier Investments could result in Smiggle and Peter Alexander being demerged, as the billionaire has previously announced both brands could be spun off in 2025.

Ultimately, Premier Investments could return to its roots as a listed investment company with equity stakes in a number of public companies as well as a pile of cash to reinvest in new ­investments.