Retail hope as Premier Investments profit rises 20%: Five reasons the defiant retailer is bucking the trend

There’s been more good news in the retail sector this morning as Premier Investments, which owns and operates the Just Group alongside several other iconic brands, announced a defiant 20% rise in profit for the first half of the year.

The news comes alongside some bright spots for the retail industry, after Myer announced an $88 million rise in profit for the last six months, and the Commonwealth Bank yesterday announced retail sales had continued to rise.

This morning, Premier Investments announced a 20.7% increase in net profit to $46.5 million for the six months to January 26.

Chairman Solomon Lew said the company, which operates retailers such as Just Jeans, Jay Jays, Smiggle and Peter Alexander, has continued to operate well in challenging circumstances.

“This result is a credit to the management team of Premier Retail and the relentless implementation of the six-point EBIT improvement plan unveiled 18 months ago,” Lew said.

Like several other companies in the retail industry, Premier Retail has undergone a transformation to deal with the shift to online sales – and the results are clear.

“This transformation program has enabled the company to deliver continued profit growth for our shareholders,” Lew says.

The investor presentation revealed a fully-franked dividend of 19 cents, up from 18 cents in the previous period, while sales are on track during the first six months of the year.

But there’s more to Premier’s strategy than simply throwing new stock on shelves. Not only has the company’s transformation strategy involved a shift to digital media; it also means taking a hard look at costs, inventory and margins.

Let’s take a look at five ways the company is continuing to do well:

1. Solid management team

David Gordon, partner at consultancy group Bentley’s, says one aspect of Premier Investments often overlooked is the retail experience it has built up among its individual brands.

“You have (former Country Road chief executive) John Cheston running Smiggle, you also have a number of people there from David Jones and Myer,” he says, referring in part to chief executive Mark McInnes.

“He’s built a strong team of executive brand managers there.”

2. Scrutiny when it comes to costs

A peek at the company’s investor presentation reveals the company is cracking down on costs.

There are currently 20-30 cost reduction activities in progress, while the business has been able to find $3.4 million in cost savings in areas such as samples, visual merchandising and consumables.

The business has also been looking for “cost efficiency initiatives” in its supply chain and discretionary costs.

If you’re trying to save your company during a troubling time, Premier’s example is a good one – no cost is too small. It all adds up.

3. Closing unprofitable stores

While some retail businesses have tried to beat the doom and gloom through rapid expansion, Premier has chosen to close more unprofitable stores in many of its brands.

Loss-making stores in the Portmans, Just Jeans, Jacqui-E and Jay Jays brands have all been closed. Premier’s strategy is simple – don’t try and save stores that are too far gone. Just cut them loose and save the rest of the company.

4. Beefing up online sales

Like several other retailers transforming themselves for the digital age, Premier has recorded a solid rise in online sales – 51% to be exact.

While that’s surely from a low base, and based on industry standards probably won’t make up more than $20 million in revenue total, it’s a good sign the business is working hard.

But not only that, the company has proven its attention to detail, noting that sales from mobile devices have been “exceptional”, and stressing the importance of next day deliveries.

5. Cracking down on margins

When prices have been slashed so far, especially in the fashion sector, there’s not much a company liked Premier Investments can do to save itself. But if you have a strict focus on costs, and increasing your margins, you can survive. The company has done just that.

In the investor presentation, Premier Investments noted its gross margin has increased by 113 basis points in the first half of the year, due to improved merchandise assortment and planning, and improved profitability from factory outlet stores.

In many ways these two sources of extra revenue are easy to manage. The business has simply tinkered with two parts of the business that don’t require a massive amount of strategy, and have come out on top.

Other retailers such as JB Hi-Fi have been carefully increasing margins as well. It’s a sign the retail industry is beginning to fight back – and yet another signal retailers are beginning to slowly increase their prices.