Solomon Lew’s Premier Investments on track to nearly double earnings

As many rivals struggle, Solomon Lew’s fashion empire is on track for record profits thanks to online sales and winter demand.

Premier Investments chair Solomon Lew, left, with outgoing CEO Mark McInnes. Picture: Daniel Pockett

The best act in Australian retail, billionaire Solomon Lew and the boss of his publicly-listed fashion empire, Mark McInnes, have continued to navigate the disruption of the global pandemic to issue a profit upgrade that puts it on track to double earnings.

As the seasons change to more colder conditions and online shopping remains hugely popular in the wake of further waves of Covid-19, Smiggle owner Premier Investments revealed a sales jump since the start of calendar 2021 which should see the company easily beating market expectations.

In a trading update to the market on Friday, Premier Investments said its Premier Retail arm, which also owns chains such as Peter Alexander, Just Jeans, Dotti and Portmans, was on track for another year of record revenue and profits.

The upgrade follows the retail major early last month promising to pay back $15.6m worth of JobKeeper benefits it received while its stores were closed during the Covid pandemic last year.

The latest numbers brings down the curtain on Mr McInnes’ career at Mr Lew’s side, with the CEO to present his last financial results later this year as he hands over to incoming Premier Retail boss and current JB Hi-Fi CEO Richard Murray.

Mr McInnes leaves on a high having helped drive Premier Investments to 10 years of earnings and dividend growth, and a market capitalisation of almost $4.5 billion against under $1bn when he started.

The Lew family’s cornerstone of its vast fashion and retail empire, Premier Investments is among the first fashion and apparel retailers to provide further insight into winter trading and its performance through further waves of the pandemic.

Premier Retail announced that total global sales for the first 18 weeks of the second half ended June 5 were up 70 per cent on the comparable period of 2020 and up 15.8 per cent on the comparable 18 weeks of the second half of 2019.

It said the strong trading momentum announced in Premier Investment first half result has continued to date.

“The group’s trading during the all-important Easter School Holiday trading period was particularly strong. Critically, the group also delivered a record Mother’s Day and May result as Premier Retail successfully cycled the reopening of all its Australian and New Zealand stores which were closed due to Government directions at the end of March 2020 because of the Covid-19 health crisis,” the ASX trading update said.

However there was a note of caution as new waves of the pandemic and a reluctance by some consumers to head out to the shops could dent momentum.

“The current trading environment remains extremely volatile given the ongoing Covid-19 impact on the group’s global operations. Subject to macro-economic trading conditions remaining strong, no further significant Covid-19 Government mandated store closures or significant Covid-19 social movement restrictions where stores remain open but customers may not feel comfortable and safe shopping in store.”

Premier Investments said it now expects Premier Retail 2021 earnings for the 53 weeks ending July 31 to be in the range of $340 million to $360m.

This higher range represents an increase of between 82 per cent and 92 per cent on the underlying 2020 earnings and between 103 per cent and 115 per cent on the underlying 2019 earnings.

Shares in Premier Investments closed up 0.4 per cent at $27.43 on Friday, and are up almost 80 per cent in the last year.

The expected full-year EBIT range is currently being driven by strong customer demand for the winter product ranges across all brands, online sales growth and highly profitable online performance as well as gross margin expansion with second half season to date up over 380 bps on both 2020 and 2019. It also benefited from strong cost control culture including continuing to reach agreements with landlords that appropriately rebase the Group’s rent expense.

Outgoing CEO Mr McInnes said the upgraded range will represent another record result for Premier’s shareholders.

“The strategic decision taken last year by the chairman and I to build our supply chain and significantly invest in wanted inventory for Easter, April school holidays, Mother’s Day and the winter season has ensured we are in stock, delivering strong sales and gross margin growth across all our brands.

“The group has successfully enabled customers to shop seamlessly either online or in-store during the Covid-19 health crisis. This has been achieved through the long-term strategic investments made in our online capability combined with our ability to reach mutual agreements with landlords to appropriately rebase rents.”

Citi analyst Bryan Raymond said the EBIT guidance upgrade is around 10 per cent ahead of consensus and Citi forecasts of $318 million.

“The strength of recent trading with strong sales momentum despite significantly reduced promotional activity has given management confidence to provide an early 2021 estimated trading update, with eight weeks remaining in the fiscal year.”

Mr Raymond said Premier Investments is generating this sales momentum with significantly lower promotional intensity, reflecting an unusual time for the retail sector.

“While Premier Investments is clearly executing well, this unusual environment of accelerating sales and gross margins reflects the exceptional retail market conditions, with strong demand, elevated savings and limitations on non-retail spending.”

Originally published as Solomon Lew’s Premier Investments on track to nearly double earnings