Premier Investments and Myer today confirmed the proposal to merge Premier Apparel Brands and Myer. Premier shareholders will receive 7.2 Myer shares at a post synergies 13.0x PE valuation. Premier Investments retains high margin Peter Alexander and Smiggle and an investment in Breville.

Premier Investments reported FY24 Retail EBIT down 9% to $326 million. Gross margins finished higher with a second-half increase of 94bp. Cost management during FY24 helped offset the operational leverage of lower sales. The delayed strategic review allows the board to focus on the Myer merger proposal. 

Premier Investments has provided a trading update stating FY24e sales will be $1.60 billion and Retail EBIT (pre AASB-16) at $326 million. The result suggests 2H24 sales fell by 2% with EBIT down 15%. Weak sales trends are likely across the board, with Peter Alexander sales per store and Smiggle soft too. The weaker 2H24 EBIT margin decline is a function of operating cost growth exceeding sales growth in our view.

Premier Investments reported 1H24 Retail EBIT down 4.8% to $210 million. Gross margins were higher than expected and along with tight cost control, helped to offset the operational leverage of declining sales. We expect a similar outcome in 2H24e with sales only up 1% and elevated cost growth leading to lower EBIT. Little detail was provided on the strategic review with a potential split up of the business possible in 2025.