Solomon Lew’s Premier Investments is facing renewed pressure to hand back more JobKeeper subsidies in the wake of a major upgrade this year following a bumper Mother’s Day and stellar back-to-school trading.
The name behind brands such as Smiggle, Peter Alexander, Just Jeans and Dotti has defied the wider trend of other retailers who have struggled to grow sales against last year’s lockdown surge.
In a rare move, Premier provided guidance that it is now expecting earnings before interest and tax (EBIT) for its retail operations to be as much as 92 per cent higher this financial year, which ends in July.
The result was helped by reaching recent deals with landlords in the face of COVID-19 restrictions, as well as strong demand for winter products across all brands, online sales growth, and cutting costs.
Shadow assistant minister for Treasury and charities Andrew Leigh ramped up his call for Premier to return job support it received during fiscal 2020.
“Premier Investments received $100 million in JobKeeper in 2020 and returned just $16 million,” he said. “Given that its latest earnings upgrade confirms Premier has now doubled pre-COVID profits, the company should repay every single dollar of JobKeeper it received.”
Mr Lew declined to comment further on Friday whether he would pay any of the $69 million received last fiscal year in wages support, but has previously indicated the funds were needed as “insurance” to pay staff in the event of further lockdowns.
Melbourne is only just emerging from its most recent snap lock-up for the past two weeks. Movement is still limited and there are caps on patrons in pubs and restaurants. Premier closed its 228 stores on May 27, with 49 of those in regional Victoria reopened on June 4, and the balance of metropolitan stores opened on Friday.
Premier has repaid $15.6 million in JobKeeper received in the January-half after coming under sustained fire given its record results.
Mark McInnes, outgoing chief executive of Premier Retail, said the 2021 full year EBIT upgrade is another record result.
“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,” he said.
Mr McInness is leaving on a high, as he hands over to the outgoing JB HI Fi boss Richard Murray in October. He successfully enabled customers to shop seamlessly online or in-store during the COVID-19, thanks to strategic investments made in its online capability and deals with landlords to rebase rents.
Premier flagged global sales for the first 18 weeks of the second half were up 70 per cent, pushing full-year EBIT to be 82 per cent to 92 per cent higher, or $340 million to $360 million (pre-AASB 16) for the 53 weeks ending July 31.
This is 10 per cent above consensus forecasts, and compares with the $187.2 million underlying EBIT reached in the 52 weeks ended July 2020, and $167.3 million for fiscal 2019 before the pandemic struck.
Investors piled into the stock, sending it to fresh highs, ending Friday 11¢ higher to $27.44 each. The retailer’s performance in the year to date is up 16.25 per cent.
Mr McInnes warned that the current trading environment remains extremely volatile given the ongoing COVID-19 impact on the company’s global operations, so the upgraded outlook was subject to conditions remaining strong and no further major mandated store closures.
Smiggle stores have reopened in the UK and Ireland and are trading in line with expectations, but conditions in Asia remain challenging.
Blue Ocean Equities analyst Phil Pepe called it a “very impressive result” in challenging conditions. He lifted his price target to $31.50 from $31 per share and retained his ‘buy’ call.
Airlie Funds Management portfolio manager Matt Williams is a major shareholder in Premier, who said management made the right calls on inventory.
He said he supported the chairman paying back some JobKeeper, but declined to say if further repayment was appropriate.
“This time last year, when a lot of other retailers were looking to batten down the hatches, Premier was much quicker in seeing a recovery and growth and hence acted accordingly on inventory, which has really helped them,” he said
Mr Williams added another good decision was the 2013 investment in centralised and customised distribution centre, which services all its products in Australia, allowing it to adjust stock deliveries when needed.
He noted Premier did not have to discount to move stock – helping gross margin expand in the second half up over 3.80 percentage points compared with the prior half year.
“The rebasing of rent can’t be underestimated. That’s going to be an ongoing permanent sort of benefit,” he said.