Retailing: Premier The First Of Many Retailers To Restructure

The first major listed retailer has blinked and moved to rationalise its business as the sector continues to be impacted by the consumer slowdown, higher savings rate and the stronger Australian dollar.

Premier Retail, part of Solomon Lew's Premier Investments, yesterday revealed a major restructuring of its various chains in a 36 page document filed with the ASX with at least 50 stores to be shut and staff numbers cut.

It also revealed an earnings downgrade for the July 31 financial year of 40%.

While it expects a 2.4% increase in sales in the second half of 2011 (which ends next week) and sees a bright future, the current trading conditions are obviously too much of a burden and some of the chains under its control will have to be slimmed to remain viable.

Premier shares sagged 3.6% on the news by the close, a fall of 19c to $5.12.

Premier Retail, formerly the Just Group, owns chains such as Just Jeans, Jay Jays, Portmans, Jacqui E, Peter Alexander, Dotti and Smiggle.

But it's not all cut: the company will spend money expanding the online business, especially at Peter Alexander and Smiggle and up to 50 new Peter Alexander stores are planned over the next three years. And up to 70 new stores for other chains are planned, at this stage. A further 30 new Smiggle stores could be opened in the same time.

A number of private equity owned chains have already restructured or collapsed: these include Borders, Red Group, which controlled Borders and Angus and Robertson outlets (not all of the latter have closed).

Colorado Group is cutting back sharply, closing most of the Colorado outlets and slimming Mathers, Williams, Diana Ferrari and JAG chains alive: 100 underperforming Colorado stores in Australia will shut, along with nine Colorado stores in New Zealand, 21 Williams stores, seven Mathers stores, two JAG stores and one Diana Ferrari store.

These will be sold if possible and Premier is widely regarded as a logical buyer for Jag and Diana Ferrari.

But after yesterday's restructuring announcement, that purchase would have to be someway off, if at all.

Premier says following the strategic review, a number of one-off charges would be incurred in the range of $14 million to $16 million in the rest of 2011.

These include asset write-downs, onerous leases and store closure costs associated with the closure of up to 50 loss-making stores at lease expiry.

As part of the EBIT improvement plan, Premier plans to "rejuvenate and reinvigorate all five core apparel brands" and an "organisation-wide cost efficiency program".

A big part of the plan will be to grow the already expanding online business.

"The internet is already Just Group’s largest store, with Peter Alexander in particular having a strong online business. Just Group’s brands are proprietary to it, creating opportunities to leverage and expand Just Group’s unique social networking database of over 1 million customers.

"Peter Alexander is a high value brand with significant growth potential, especially through Australia and potential Asian store roll-out. 15-30 new stores are planned for Australia over the next three years.

"Smiggle is a unique brand in a highly attractive market, but it is underrepresented in Australia and New Zealand (30-50 new stores are planned over the next three years). In addition, following a successful launch of Smiggle in Singapore, 12-20 new stores are planned for Singapore over the next two years.

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"Additional opportunities exist to expand Smiggle in Asia and beyond over the medium term."

Premier also announced redundancies would be carried out in relation to "realigning our organisation to the key strategic imperatives".

Premier Retail now expects its full-year earnings before interest and tax to be in the range of $64 million to $66 million while parent company Premier Investments' consolidated underlying profit before tax is expected to be between $72 million and $74 million.

That's a downgrade in expected profit before interest and tax in the current year from the previously expected $80 million to $85 million. And that’s before the $14 to $16 million in one-off charges.

Premier said it sees a strong profit rebound in the current year with a forecast for FY12 EBIT for Premier Retail (Just Group) "to be in the range of $80 million to $95 million".

(That's a pretty wide range, indicating a lot of remaining uncertainty.)

The updated guidance comes after a strategic review of Premier's retail assets and opportunities by recently appointed chief executive Mark McInnes.

Mr McInnes said in yesterday's statement that Premier relies heavily on school holidays, but recent trading had been "challenging" due to slow trade during the school holiday period.

"We have not experienced the expected uplift from July school holidays across Australia and New Zealand that we experienced in April," Mr McInnes said.

"In addition, margins have remained under pressure, as industry-wide discounting has increased.

"We have moved swiftly to better align our cost base for full year 2012, as well as ensure our excess winter inventory has been priced to clear over the last two weeks of this month."

Premier Investments chairman Solomon Lew described the profit performance for fiscal 2011 as "disappointing," notwithstanding the very "challenging retail environment".

"However, if there is no further deterioration in the general retail environment, the board firmly believes that the combination of Mark McInnes’ appointment, the implementation of the strategic review with a clear focus on merchandising, cost controls and margin expansion, the strong senior executive hires made by Mark; and our clean inventory position, provide the platform for a return to acceptable levels of sustainable growth.

"This is reflected in our FY12 guidance."

In the statement Premier said:

"Just Group has an excellent stable of seven iconic brands all with unique positioning and significant opportunities over time

"Just Group has a high performance management team, with recent appointments further increasing the organisation’s talent base

"Premier Retail has the balance sheet to address challenges facing the retail industry and to broaden its retail assets over time as opportunities present themselves. ''