The internationalisation of Smiggles and rapid growth of Peter Alexander failed to save Premier Investments Limited (ASX: PMV) from slumping to a two-week low this morning.
The stock tumbled 2.5% to $11.86 even as the broader market shed less than 1% in value even after management reported a 20.7% increase in net profit to $88.1 million and a 6.4% uplift in sales to $946 million for the year ended July 25, 2015.
Premier's stationary brand Smiggles and its sleepwear business Peter Alexander were the standouts with sales jumping 26% and 14.9%, respectively.
But the group's top and bottom lines were a little below consensus expectations and its skinny dividend increase probably also disappointed the market.
Management lifted its final dividend by 1 cent to 21 cents, taking its full year payout to 51 cents. While that is well above 2013-14's dividend of 40 cents a share, last year's distributions were bolstered by a one-off special dividend of 9 cents a share.
The market had been anticipating a final dividend of 23 cents and woe is the company who would dare let investors down on the dividend front. Analysts are likely to be downgrading their dividend forecasts for the current financial year.
But management has a good reason to be conserving cash. Unlike other companies that have been hoarding cash to protect against a downturn in their business, Premier needs it to expand.
The retailer is looking to add 16 new Smiggles stores to its 24 store network in the UK before the 2015 Christmas shopping rush. The UK market is estimated to be worth $2.4 billion and management is aiming to expand to 200 stores in that country over the next five years.
Asia also represents a lucrative market for Smiggles judging by the success of its Singapore expansion. The group estimates that Malaysia and Hong Kong represent an addressable market opportunity of around $US1.7 billion ($2.4 billion) and Premier thinks there is a potential for it to open 50 stores in both countries within five years.
Peter Alexander is also outperforming the broader retail market with sales from the division growing by 40% over the past two years and management said it will open eight new stores before the calendar year end in Australia and New Zealand.
The potential number of new stores is estimated to be up to 15 by 2016-17.
Premier's other brands like Just Jeans and Dotti also experienced sales growth in 2014-15 and the group has even managed to expand gross margin by 103 basis points (1.03 of a percentage point) to 63.1% despite a weaker Australian dollar and a highly competitive market.
Stationary generates very strong margins (those with kids will fully appreciate this point) and the rapid expansion of Smiggles means group margins have room to grow further.
While Premier didn't give and outlook or guidance for the current financial year, sales growth accelerated in the second half of 2014-15, which could indicate that the momentum is carrying through.
This is certainly the case for luxury brand retailer OrotonGroup Limited (ASX: ORL) when it handed in its full-year earnings report card yesterday.
Premier is perhaps a victim of its own success as the stock is trading on a pretty lofty 2015-16 consensus price-earnings of 18.5x, but I think the stock represents a good buy for investors with a longer-term perspective.
Smiggles has the potential to be a truly global Australian brand and if it achieves similar success in international markets as it has here, the stock will be worth a lot more than its current price.
I can't think of another locally listed retailer with the same global upside potential and that makes the stock a "buy" in my book.
