The Clime Direct Model Portfolio owns shares in Premier Investments (PMV), which has portfolio of retail brands including Smiggle, Peter Alexander, Just Jeans, Jay Jays, Portmans, dotti, Jacqui E, a 28% shareholding in Breville and 10% of Myer.

PMV shares have surged 22% since the full-year 2019 result announced on 23 September, which revealed excellent execution across business segments despite the difficult retail environment. The Smiggle business, central to the long-term growth story, reported much better sales and early success in its wholesale strategy.

Smiggle’s strategy facilitates access to a global market, leveraging the capital investment of others. The business has partnered with six leading retailers, providing access to seven new countries to date: South Korea, Thailand, Indonesia, Philippines, UAE, Canada and Qatar. Smiggle is now in 180 third-party shopfronts less than a year after the launch of the strategy. Management sees potential for 350+ shopfronts within two years from the existing retail partners. Importantly, three of the wholesale stores opened to date are already in the top 20 stores for retail sales globally.

Smiggle wholesale store in the Philippines
Source: PMV FY2019 result presentation

Strong features of the result were:

FY19 underlying profit before tax increased by 11% to $178m and was 6% ahead of market expectations.

Dividends per share increased by 13% to 70c.

Group free cashflow generation was very strong at 99% of underlying NPAT.

All segments reported solid revenue growth, with Smiggle UK returning to positive like-for-like growth in 2H19/early 1H20. Smiggle total sales were +4.6% for the year and +5.2% ex-wholesale for the first six weeks of FY20.

Peter Alexander sales grew strongly at 13%.

Management guided to 20-30 new Peter Alexander stores over the next two years, equating to an 18% expansion of the store network at the mid-point.

Apparel Brands, which includes Just Jeans, Jay Jays, Portmans, dotti and Jacqui E, grew sales by 7% and closed some lossmaking Apparel Brand stores, with the lost sales more than offset by online growth.

The overall business continues to grow operating margins by +50bp for the year to 13.2%, supported by faster growth of online sales (+32%, 13% of total) and rent reductions.

Clime’s valuation is $20.30 per share, above the current share price of $19.11. Continued strong execution of the Smiggle wholesale strategy would justify a higher valuation and share price. We look for Smiggle to add additional retailer partners and expand in Europe. China is a possible new market long-term.