Premier Investments targeting spin-offs for Smiggle and Peter Alexander in 2025

Premier Investments (ASX: PMV), buoyed by another strong earnings performance in the first half, is progressing plans to spin off its fast-growing Smiggle and Peter Alexander businesses into separate listed entities as early as January next year.

The retail group, which also operates the Portmans, Just Jeans, Jay Jays, Jacqui E and Dotti brands through its Apparel Brands division, revealed its intentions to spin off stationery group Smiggles by the end of January next year, while sleepwear design brand Peter Alexander is likely to become a stand-alone business sometime in calendar 2025.

The announcement was made in tandem with Premier Investments announcing a net profit of $177.2 million for the six months to 27 January this year, up 1.65 per cent from a year earlier.

The solid result defied the squeeze on consumer discretionary spending which saw group retail sales bounce off record highs last year, falling 2.8 per cent to $879.5 million.

However, Premier Investments has been lifted by its second-highest sales and EBIT (earnings before interest and tax) performance on record.

First-half EBIT of $209.8 million was 4.9 per cent above the company’s expectations of $200 million announced in December, which chairman Solomon Lew says “in itself was an upgrade to the approximate $180 million consensus at that time”.

Smiggle and Peter Alexander were key drivers of growth during the period, making the case for Premier Investments to spin off the assets.

“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,” says Lew.

“We are therefore working towards a demerger of Smiggle by the end of January 2025 and exploring a demerger of Peter Alexander in calendar year 2025.”

However, Lew notes that a final decision on whether the demerger will proceed has yet to be made although the rationale is enhanced by the prospect of unlocking value.

“A number of people are predicting that the parts are worth more than the whole,” says Lew. “We’re reviewing that opportunity and proofing it up.”

Lew adds that as separate listed entities, it “creates a lot of flexibility" to grow the businesses through a “single focus”.

Peter Alexander posted another record sales performance for the half of $279.3 million, up 6.7 per cent, after opening six stores during the period.

Another three stores are planned to open in the second half, while moves are in train to launch the brand in the UK with the first two stores and a dedicated website expected to be operating before Christmas this year. Peter Alexander is targeting up to 10 UK stores in the near term.

This will be the first move into the global markets for Peter Alexander outside of Australia and New Zealand.

Lew says the company's research shows that there is “nothing like (Peter Alexander)” in the UK, underpinning Premier Investments’ optimism in the expansion plan which the chairman hopes will replicate the success achieved after Premier took Smiggle to the UK a decade ago.

Smiggle’s global sales slipped 3.6 per cent to $183.9 million in the half, with Premier Investments blaming “a challenging discretionary retail environment” for the decrease.

While Premier notes that Smiggle customers are “particularly exposed to increased cost-of-living pressures in all global markets”, the sales result remains the second best recorded by the division.

Smiggle’s expansion in the Middle East via a wholesale partner saw the first standalone Smiggle stores opened during the half-year, with seven stores opened before Christmas.

Premier expects to have over 17 standalone Smiggles stores in the region by July with the partnership targeting 60 freestanding outlets over the next decade.

Premier Investments has also announced that its Middle Eastern partnership model is being replicated in Indonesia with an existing wholesale partner. This could see 100 Smiggle stores opened in Indonesia over the next 10 years.

Meanwhile, the Apparel Brands division, which comprises 715 stores in Australia and New Zealand, suffered a setback during the year as sales dropped 8.1 per cent to $416.3 million.

Premier says it is planning to launch a new loyalty program for Apparel Brands to be launched by Christmas this year with a view to “enhancing the customer experience, building brand engagement and awareness”.

“We’re creating opportunities for those brands in terms of refreshing their formants,” says Lew.

Preliminary sales for the current half have given Lew reason to talk up the company’s prospects in the current half.

“We opened the second half with inventory down $33 million or 13 per cent on last year,” says Lew.

“Sales for the first eight weeks of 2H24 are showing improving momentum from 1H24, back up in line with the prior comparable period.”

Premier Investments has rewarded shareholders with a record interim dividend of 63c per share fully franked, up 16.7 per cent from a year ago.