Inventory worries start to weigh on retailer Premier Investments

Shares in Solomon Lew’s Premier Investments fell 5 per cent after an analyst note highlighted what it believed to be the risk of extended lockdowns upping its inventory levels.

Chairman of Premier Investments, Solomon Lew with new Premier Retail CEO Richard Murray, who will report the company’s annual results on Thursday. Picture: Aaron Francis

Shares in Solomon Lew’s fashion investment vehicle Premier Investments fell 5 per cent after Credit Suisse issued a note to clients highlighting what it believed to be the risk of extended lockdowns upping its inventory levels.

In a note released on Wednesday, Credit Suisse analyst Annabelle Diamond pushed down her price target for Premier Investments to $26.28 per share from $26.70 previously but kept her recommendation at ‘neutral’.

Shares in Premier Investments, which issues its full-year results on Thursday, fell 5 per cent to $26.36 and later closed down $1.26, or 4.49 per cent, at $26.81.

“Overall, the second half of 2021 is likely to have been a relatively strong period for Premier Investments. Covid-19 restrictions across parts of NSW and Victoria from Jul-21 present some downside risk to guidance provided in June and are likely to have a negative impact on the first half,” the analyst said.

“We have moderated second half 2021 forecasts for Premier Investments to account for parts of Australia experiencing lockdowns from July 2021.”

ABS Retail Sales data showed a material deterioration in clothing expenditure in July 2021; clothing sales declined.

Around 14.2 per cent on a two-year cumulative basis, after averaging close to 15 per cent growth in the preceding five months (relative to 2019).

“Whilst Premier Investments has a strong online offering we have reduced sales assumptions for first half 2022 due to extended lockdowns in NSW and Victoria.”

The analyst said there could be some elevated promotional activity to clear winter stock, with spring inventory likely to be of greater risk to retailers.

“Parts of NSW and Victoria are likely to experience Covid-related restrictions into Oct 2021 which means apparel retailers effectively miss an entire season of in-store trading.

“Extended periods of lockdown present inventory risk in the short-term for vertically integrated apparel retailers.”

The report did however highlight Premier Investments’s stationery chain Smiggle, with both domestic and international markets impacted by various restrictions like store closures across Britain and Ireland but data showing the business is rebounding, especially online.

“Data from Similarweb shows particularly strong website traffic for Smiggle.co.uk in recent months which may be supportive of strong reopening trade in that market. We estimate Smiggle sales at around 84 per cent of pre-Covid levels in fiscal 2021 and we are forecasting a return towards trend growth in the second half of fiscal 2022.”

Premier Investments, controlled by billionaire retailer Mr Lew, will issue its full-year results on Thursday with the company providing a trading update in June that said its fashion arm, Premier Retail, was expecting EBIT for the 53 weeks ending July 31 to be in the range of $340-$360m. The results for fiscal 2021 mark the final annual financial performance led by former Premier Investments chief executive Mark McInnes who stepped down recently after a decade leading the company.

He was replaced by former JB Hi-Fi CEO Richard Murray who on Thursday alongside his chairman Mr Lew will present the latest accounts. Mr Lew might also update the market on his intentions for Premier Investments’s 15.77 per cent stake in department store owner Myer with the billionaire investor threatening to call an extraordinary general meeting to eject the Myer board of non-executive directors and replace the with his own hand-picked nominees to be voted on by shareholders.