Premier feeling the impact of global pandemic after strong first half

Despite weathering a string of global crises, including Brexit in the UK, protests in Hong Kong and bushfires in Australia, to post record sales and earnings in the first half of FY20, Premier Investments said the coronavirus pandemic is now impacting trade across every brand in its portfolio.

On Friday, the owner of major national and international retail brands, including Smiggle, Peter Alexander, Just Jeans, Portmans, Dotti, Jacqui E, Jay Jays and Breville, reported a 7.6 per cent increase in first-half retail sales year on year, to $732.1 million, and a 10.7 per cent increase in retail earnings before interest and tax, to $126.1 million. The group declared a record interim dividend of 34 cents per share.

But the strong performance may be cold comfort for Premier, as the coronavirus outbreak and strict self-isolation measures introduced to contain the spread in certain markets have already seriously impacted its trade in the second half.

Smiggle sales have “deteriorated significantly” in the UK and Ireland and trade has been “severely disrupted” in Hong Kong, Singapore and Malaysia, the company said in a statement to the ASX.

Trade in all brands in Australia and New Zealand has been impacted, and the company warned gross margin could be affected as it moves to clear inventory in each market.

“We are prepared to close many more stores”

Premier CEO Mark McInnes declined to provide specifics on changes in sales or foot traffic, saying on a media call that the company was not “in control of what’s happening on a daily basis” and “merely responding” to the crisis at hand.

He described the current situation as “unprecedented” and unlike anything he has experienced, including the Global Financial Crisis in 2008 and recession in 1991.

He also warned there could be widespread store closures if landlords do not start supporting their tenants by renegotiating rents.

“Since the outbreak of COVID-19, we have closed two stores in Hong Kong, and we are prepared to close many more stores globally if landlords do not respond to the current crisis,” he said.

McInnes said Premier is in a position to exit 70 per cent of its leases in Australia and New Zealand with just 30 days’ notice, but he said the call for support from landlords isn’t about “profiteering”, but rather “sharing the reality”.

“Historical rents are just that…all we’re pointing out to landlords [is the reality of the situation],” he said.

Premier has secured the majority of the balance of its second-half inventory with only minor increases in supply chain costs, as Chinese factories have come back online over the past four weeks.

The company is also well positioned to meet a shift to online shopping, should customers choose to do so, McInnes said.

“We’ve had exceptional growth [online] over the last seven years,” he said.

Lfl apparel sales up 17 per cent over last two years

Premier’s retail brands delivered record online sales of $97.2 million in the first half, up 28.4 per cent year on year. Online now makes up 14.6 per cent of all sales in markets and brands with a transactional website. The recently launched New Zealand websites for Smiggle, Just Jeans, Portmans and Jacqui E performed above expectations in the half.

Premier continues to benefit from its 2013 investment in a centralised and customised DC, which is helping online to deliver a higher EBIT margin than the group as a whole.

Like-for-like sales were up 7.5 per cent across Premier’s apparel brands, with total apparel sales up 6.1 per cent. Over a two-year time frame, the company’s apparel brands have delivered like-for-like growth of 16.9 per cent.

Peter Alexander delivered record sales of $144.8 million, up 11.1 per cent year on year, while Smiggle lifted global sales, including sales from its new wholesale division, by 14.2 per cent to deliver record revenue of $193.7 million for the half.

Premier reduced its debt by $65.9 million to $101.6 million in debt and increased its cash on hand by $9.5 million $199.8 million.

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