Peter Alexander is a high margin, cash generative business. However, we anticipate a sales deterioration and gross margin drop at Smiggle in FY26e, and think Smiggle will be breakeven, contributing little to our FY26e Premier Investments EBIT forecast. We have lowered our Smiggle store network forecasts, lifted operating costs but also raised gross margin expectation on favourable currency moves.

Premier Investments’ AGM trading update gave EBIT guidance for 1H26e of $120 million on a pre AASB-16 basis exclusive of significant items (UK losses for Peter Alexander). Visible Alpha consensus estimates appeared muddied by various factors causing uncertainty around earnings changes. Limited AGM detail provided suggests Peter Alexander continues to perform but sales and gross margins at Smiggle have continued to deteriorate.

Premier Investments reported FY25 Retail EBIT of $183 million, down 24%. FY25 sales performance was divergent for Peter Alexander and Smiggle with the same trend continuing it is trading update. We downgrade EPS by 3.4% and 4.5% in FY26e and FY27e given store closures and continued sales declines at Smiggle. We have also lowered our gross margin given commentary about a competitive market. Cost discipline remains a theme at Premier. Earnings growth will be delivered in FY26e but beyond that success will be determined by a recovery at Smiggle and the success of the Peter Alexander expansion to the UK.

dusk reported FY25 sales of $137 million, up 8.7%. Like-for-like (LFL) sales growth of 7.1% meant a 2H25 LFL sales growth of 3.6%. The trading update for the first eight weeks saw total sales down 1.5%, cycling 16% growth in same period last year. We reference the two-year stack in our forecast for LFL sales growth of 4.2% for FY26e. With limited store openings and growth in LFL sales we forecast FY26e revenue forecasts of $144 million, up 4.9%.

We initiate coverage on dusk, an Australian specialty retailer of Home Fragrance Products, offering a range of dusk branded products at competitive prices from its physical stores and online store. We see dusk pushing plans to improve sales productivity through new product development, category expansion, increasing the release rate of new product and the opening of more metro stores. 

The Myer strategy day gave a clearer view of the business in its current form and addressed many initiatives to drive improvement. Strategies previously outline are on track to be delivered in FY27e. There are several initiatives underway with no long-term targets provided yet. As Myer delivers on initiatives we expect to hear more on targets.

Last week, Dollarama, a Canadian retailer, surprised the market by making a takeover offer, at a 112% premium, for The Reject Shop. While the acquisition price looks ‘full’, it is a cheap entry to access good floor space in shopping centres. The lack of new space, increasing competition for quality sites, a lower Australian dollar and a relatively strong Australian consumer could all contribute to further foreign acquisitions of Australian retail. A changing landscape could impact the margins enjoyed by incumbents across most retail segments.

Myer reported flat sales, but EBIT down 15% in 1H25. Sales were impacted by issues at the new National Distribution Centre (NDC) which shifted the sales mix to lower gross margin concession product. The trading update showed a flat start to the second-half. Earning will be largely driven by synergies and cost out initiatives over the next 2-3 years.

Woolworths has said that each of its businesses must “stand on its own two feet”. For Big W, perhaps it could be cut off at the knees at some point. While an exit is hard to execute, in some form, we expect it may occur over the next 18 months. For the retail industry it will be highly disruptive given the floor space needs to generate more sales and gross profit. A mix of other retailers could generate as much as $2.3 billion, or 50%, more in sales than the prevailing level.  While in the short-run, it may benefit a retailer like Kmart, the medium-term risk is all major retailers with geographic overlap lose some sales, namely Coles, Woolworths, Kmart and Target.

We have initiated coverage of Myer (MYR), a domestically focused department store retailer with an industry leading loyalty program, a $700 million online business and a national store footprint of over 50 stores. Myer department stores have a value proposition in the in the mid to high value range. While the merger of Myer and Premier Apparel Brands builds scale, the combined business has weak sales trends and thin margins. Earnings growth in the next three years is driven by the delivery of synergies. The combined group will then grow modestly unless we see the exit of one or more competitors. Any misstep in achieving the synergies will not be well received in our view.