Retail: Premier Did Better Than It Seems / Target’s New CEO

So was Premier Investments another victim of revealing a poor profit result on a down day for the wider market?

The profit fall had been telegraphed in a July 25 trading update and after the company reported before trading opened, saying that it had met that forecast, the stock opened up 25c, or 4.7% at $5.60, which was as high as it got.

As the wider market sold off in yesterday's Greece-inspired slide, Premier shares fell as investors looked elsewhere and by the close they were only up 8c at $5.43.

Still in a market off 68 points or more than 1.6%, the result wasn't the sole reason for the inability of the shares to sustain their opening strength.

And the reason for that wasn't hard to find: comments in post release briefings about how trading conditions were getting tougher for retailers.

And those remarks overshadowed a company forecast that it still expects to improve its performance, and evidence that the group's retail chains had had a reasonably good year, all things considered.

Premier, which owns fashion outlets Just Jeans, Peter Alexander, Smiggle and dotti, revealed a 49% fall in full year profit to $40.5 million.

But that includes $11 million in costs associated with the revamp revealed on July 25.

Before those costs the Premier's group pre-tax underlying profit showed a less disturbing 18% fall from $89.3 million in 2010 to $73.3 million in the latest year and an 12.5% drop from $63 million to $51.5 million, on an after tax basis.

So the fall in earnings from retailing was nowhere near as terrifying as the 49% fall reported in news reports and commentaries.

Premier Retail (comprising The Just Group) reported sales up 1.1% to $866 million and underlying profit of $65.5 million, which was in line with guidance.

The company cautioned that comparisons with last year had to be made carefully for three reasons.

• FY2011 was a 52 week year and FY2010 was a 53 week year.

• Included in the FY2010 result was a significant one-off tax benefit arising from the acquisition of Just Group.

• The one-off costs incurred in FY2011 associated with the Premier Retail Strategic Review (as above).

Premier said the result reflected the very challenging retail environment, characterised by low levels of consumer confidence, weak clothing and apparel sales, extensive industry discounting and natural disasters in Queensland, Victoria and New Zealand.

"The macro-economic environment and consumer confidence have continued to deteriorate in August," the recently installed chief executive of Premier Retail, Mark McInnes, said in yesterday's statement.

"As a result, trading for the first six weeks of the season (since July 30) has been very challenging."

Mr McInnes said Premier was seeking to reinvigorate its product and brands and improve gross margins through better sourcing.

"Given the macro environment, we have reacted quickly with an accelerated cost reduction program," he said.

"Our inventory is clean in all brands, and all our new Peter Alexander and Smiggle stores are on track to open pre-Christmas."

Premier reaffirmed guidance that its retail division was expected to generate earnings before interest and tax (EBIT) in 2012 of $80 million to $95 million, given the successful implementation to date of strategic initiatives, and subject to the macro environment stabilising and Christmas trading.

Outside the Premier retail division, Premier said its investment earnings had improved strongly, with higher interest on its cash reserves and improved dividends from its investment in Breville Group.

Premier declared a final dividend of 18 cents, fully franked, in line with the dividend in the prior corresponding period.

That made a full year payout to shareholders of 36c a share, unchanged from 2010.

"The board decided to maintain the final dividend, despite a very challenging year given our confidence in the new leadership of Mark McInnes and the potential of the strategic plan to deliver improved business performance," Mr Lew said.

That is a sign that the board isn't too concerned about the tough trading conditions.

And buried in the result was another positive, which many gloomsters will ignore: Premier Retail managed a small improvement in its profit margin in the year.

The company said that gross margins improved by 0.53% to 60.2% in the financial year "not withstanding the difficult environment."

Now that's not a bad effort and should be remembered when next you hear people moaning about how tough it is some areas of retailing.

Premier operates in the tough clothing sector, with the emphasis on female fashionwear.

The tougher trading conditions in this sector It caused a big fall in profit at down market (and smaller rival) Noni-B and a halving in full year profit at Specialty fashion Group (which owns the Millers' chain, among others).

Later this week David Jones is down to release its full year figures, as is the upmarket retailer, Orotongroup.

And in another retailing development, the CEO of Wesfarmers' Target department store is leaving.

Wesfarmers said in a statement to the ASX yesterday that CEO Launa Inman will step down from the position early next year after a search to find her replacement.

Mrs Inman said that after almost seven years in the position, and a transformation program to position Target for long-term success in place, she felt the time was right time to move on.

"I feel privileged to have been given the opportunity to lead Target and I am very proud of what the team and I have achieved together during my time as managing director," Mrs Inman said in the statement.

"Target has been an incredibly successful retailer for many years.

"Over the past six months the team and I have been pressure testing our strategy and working on a number of projects to ensure Target's long-term sustainable growth.

Wesfarmers' managing director Richard Goyder said Mrs Inman had done a ''wonderful job'' in her role at Target. She had brought Target seamlessly into the Wesfarmers group following the company's takeover of the former Coles Group businesses in 2007.

For the 2011 financial year Target's earnings fell 26% to $280 million on a small dip in sales to $3.782 billion.

Wesfarmers shares dipped 30c to $30.43 yesterday, a fall of less than 1%.