Shares in fast fashion and children's stationery retailer Premier Investments Limited (ASX: PMV) slumped around 8 percent in morning trade after the group revealed its profit result for the 53 weeks ending 30 July 2016.
Premier reported an underlying net profit of $145.4 million on record-breaking total sales of $1.05 billion, with total like-for-like sales up 3.5% across the entire group.
It delivered a final dividend of 25 cents per share to take the full year total to 48 cents per share. This reflects a payout ratio in the region of 73% on total earnings per share (eps) of 66.3 cents. EPS were up 17.3% over the prior year as gross margins lifted 78 basis points, although the group did flag a weaker-than-expected Autumn period due to unseasonably hot weather and a long federal election campaign.
The company retains a fortress like balance sheet with cash on hand of $238.2 million and its substantial shareholding in kitchen appliance business Breville Group Ltd (ASX: BRG) worth $295 million as at 20 September 2016.
Fashion brands
Popular fast fashion brands the group owns include Dotti, Just Jeans, Jay Jays, Jacqui E and Portmans, although it looks like they collectively delivered a mediocre second half with the group declining to reveal specific like-for-like sales performance as far as I can see. All these brands remain in an increasingly competitive environment for low-cost fashion, which is reflected by what looks like largely flat growth for the period. I am not overly optimistic about their potential to deliver consistent growth in the years ahead.
Peter Alexander
This popular home-wear business delivered sales growth of 20.4% for the year thanks mainly to the opening of 11 new stores and what the group described as "strong" like-for-like sales growth. The company stated further store growth is being explored, although it's difficult to know how well the underlying business is performing with no specific number for like-for like store sales growth.
Smiggle
This colourful children's stationery business is the real growth driver with Australia and New Zealand like-for-like sales growth described as "strong" and seven new stores opened over FY16 in the region.
Total Smiggle sales were up 41.8% to $188 million with 52 new stores opened over the period. Forty of the new stores were opened in the United Kingdom to take the total to 64 trading stores in the post-Brexit region, with ambitions for Smiggle UK to have 200 stores and annual sales of $200 million by 2019.
The group also expanded its Smiggle footprint across Asia over the period with stores now in Singapore, Malaysia and Hong Kong. Asia is another market it hopes to aggressively expand into, assuming the brand remains popular with schoolchildren and their parents. For the UK and Asia like-for-like sales growth was again described as "strong" although no specific details were revealed.
Foolish takeaway
After today's price falls the stock trades for $15.82, which is around 17x trailing underlying earnings of 93 cents per share on a dividend yield of 3 percent. In order to justify this valuation the Smiggle business will have to perform especially well as the other businesses remain in a tough competitive environment.
Premier Investment's financial health and management team mean it remains one of the very best retail stocks on the ASX, although in my opinion the shares are overvalued given the growth potential.
