Solomon Lew’s Premier Investments is working on a demerger of Smiggle, Peter Alexander
Solomon Lew will reshape his $4.9bn retail conglomerate Premier Investments after unveiling a demerger of its chains Smiggle and Peter Alexander into two new ASX companies.
Billionaire Solomon Lew has provided a glimpse into the future of his $5bn Premier Investments empire that will see a planned demerger of Peter Alexander and Smiggle into newly listed companies where both brands – unshackled and autonomous – can chase tantalising growth opportunities overseas.
Under the new strategy Mr Lew’s Premier Investments would then emerge with a hotchpotch of assets ranging from stakes in the demerged brands, and its existing legacy retail chains, to large equity stakes in kitchen appliances maker Breville and department store Myer, as well as an office tower and $338.1m in franking credits.
This could then give Premier Investments the agility and ability to make large and fresh investments in new businesses, including cornerstone stakes that might bring some ownership control, although Mr Lew was adamant that his almost-40 years old publicly listed vehicle Premier would stick to its traditional profile of investing in and running retail businesses.
“Our shareholders invest in the business that we know, the business that we were proven in, and the business our executives fully understand and deliver on so, no, we are a retailer and we will stay in that,” Mr Lew said on Tuesday as he unveiled the initial framework for a Peter Alexander and Smiggle demerger as well as Premier Investments’s first-half results that comfortably beat market expectations.
The demerger plan flows from a strategic review triggered by Mr Lew late last year and which has sent investors and the market on a whirlwind of speculation ranging from the sale of Premier Investments fashion brands to Myer, the spin off of the chains into a new company or even launching a takeover bid for the 70 per cent of Myer it doesn’t yet own.
The shape of that future Premier Investments, which in the mid-1980s started as a $60m cashbox, became clearer on Tuesday as Mr Lew revealed a two-step demerger for his fastest growing retail chains that was also coupled with new international expansion plans.
Firstly, its high-growth stationery chain Smiggle could list by the end of January as a standalone business, while it was also exploring the demerger of its sleepwear chain Peter Alexander into another ASX-listed entity during calendar 2025.
“The ongoing strategic review has identified that the potential demerger of Smiggle and Peter Alexander is likely to maximise and accelerate the growth opportunities for these two brands over time,” Mr Lew said.
“A number of people in the market are predicting the parts are worth more than the whole, and if that is the case, we have to act in the best interest of shareholders. And the opportunity is in more running the businesses somewhat more autonomously under different structures. We see potentially, left to their own devices, they (Peter Alexander and Smiggle) could even expand the business further and that would be in the interest of people who work in the business and of course, if they are successful, the shareholders.”
Also for Premier Investments investors as well as future shareholders in ASX-listed companies Peter Alexander and Smiggle, Mr Lew dangled out promising new offshore growth plans for both labels, highlighting both brands’ international appeal. Peter Alexander would launch into Britain before Christmas this year, with the interim boss of his Premier Retail division, John Bryce, commenting on the huge attraction of people opening a Peter Alexander gift under the Christmas tree.
“There is nothing like Peter Alexander in the UK,” Mr Lew added.
Peter Alexander management had also identified up to 10 new UK store opportunities in the short term as part of the initial launch plans.
For Smiggle, which already operates in Britain, there are more than 30 new store opportunities identified as part of its supercharged growth strategy, with an agreement also reached with a key wholesale partner to open freestanding Smiggle stores in Indonesia in addition to their current ‘store-in-store’ arrangements.
News of the possible demerger, offshore expansion and a strong profit result from its stable of fashion, apparel and stationery brands saw shares in Premier Investments initially jump almost 10 per cent – adding more than $400m to its market value – with the stock later closing up $1.35 at $32, its highest level since late 2021.
Premier Investments reported a 2.9 per cent rise in sales to $890m for the first half to January 27, as profit for rose 1.7 per cent to $177.2m. Earnings came in at $209.8m, around 5 per cent above market expectations that were based on guidance given in late 2023 of earnings closer to $200m.
It declared an interim dividend of 63c a share, reflecting a record interim payment, up 16.7 per cent. But it was down from the 70c per share paid last year, when Premier Investments fattened its interim payment with a special dividend. The 2024 interim dividend is payable on July 24.
Analysts were impressed with the 1 per cent reduction of costs of doing business, which was achieved despite the strong inflationary pressures through the economy, and a pressing down of rental costs. Mr Lew was pushed by some eager analysts to hear more about how Premier Investments had squeezed better rents from landlords, but the billionaire refused to divulge his ‘secret sauce’ for his tough negotiations with shopping centre landlords describing it as Premier Investments’s ‘intellectual property’.
Its Premier Retail stable of brands recorded first-half sales of $879.5m, the second-highest sales result in the group’s history, with sales at Peter Alexander up 6.7 per cent to $279.3m and Smiggle sales of $183.9m down 3.6 per cent. The group’s five apparel brands comprising Just Jeans, Jay Jays, Portmans, Dotti and Jacqui E delivered sales for the half of $416.3m, a decrease of 8.1 per cent.
The company said the better than expected performance was helped by record Boxing Day sales.
“In a challenging general discretionary retail environment, Premier Retail delivered its second-highest sales and EBIT performance in the group’s history,” said Mr Lew.
It also achieved a clean inventory position – meaning it was less likely to be holding unwanted stock it would need to discount to shift – with its retail chains commencing the second half with inventory down $33m or 13 per cent against January 2023.
Premier Retail is planning to launch a new loyalty program for its fashion and apparel brands, which Mr Lew believes will be up and running by the end of the year.
At the end of the first half, Premier’s investment in Breville had a market value of $970.5m, while the investment in Myer had a market value of $154.9m.
Premier Investments harvested $5.7m in dividends from Breville in the half and $2.4m from Myer.
Giving it plenty of options to deploy cash into its businesses, or take stakes in others, Premier Investments held $478.1m in cash at the end of the half.
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