Lew still sour on Country Road
Premier Investments has posted a 1.8 per cent increase in trading profits for the 2013 financial year, yet chairman, Solomon Lew, remains cranky about the performance of fashion rival, Country Road which lifted earnings by 172.6 per cent in the same period.
Lew has remained a disgruntled 11.9 per cent shareholder in Country Road after close to 88 per cent of the apparel retailer’s shares were acquired by South African-based Woolworths International last year.
Lew’s strategy in retaining a shareholding is difficult to fathom given that he is apparently never satisfied with Country Road’s performance or the decisions of the board, including the funding of the prized acquisition of Witchery and Mimco from private equity owners.
Lew voted against the re-election of Ian Moir as chairman of Country Road and the adoption of the remuneration report at Country Road’s annual meeting despite financial results that make Lew’s Premier Retail division, trading as Just Group, look insipid.
It is hard to say whether his current annoyance with Country Road is a massive case of sour grapes over the retailer acquiring his former retail business, Witchery, in what appears to be a very favourable deal; or that he has no seat and say at the board table; but his criticism looks churlish when the Just Group’s financials are considered.
Premier Investments posted a $174.5 million net profit for the latest financial year but only because of a $105 million one off accounting reclassification gain on its investment in the Breville Group.
The underlying profit for Premier Investments was $69.5 million up only marginally on the $68.3 million posted in the previous financial year.
Premier Investments reported a bare 0.9 per cent increase in sales to $836.4 million for the full financial year to June 30, and the company went out of its way to gloss over that result and the failure of its core brands to gain any sales momentum.
By comparison, Country Road lifted sales by 68.8 per cent to $706.3 million for the 2013 financial year and reported a 172.6 per cent boost in earnings to $55.9 million.
Sales in comparable Country Road and Trenery stores were up 12 per cent in the year before the contribution of Witchery and Mimco, which should have left Lew rather embarrassed about his own backyard at Just Group.
Lew has recruited a stellar crew of retail executives from Myer and David Jones, but sales have scarcely moved and the only solid performers among Just Group’s brands are Smiggle and Peter Alexander, which are somewhat flattered as they are coming off a small base.
A bit rich, therefore, to remain cranky at Country Road chairman, Ian Moir; CEO, Iain Nairn; and designer, Sophie Holt, who are not only whipping Just Group’s retail brands, but are also performing exceptionally well in market conditions that Lew claims have been the worst he has seen in 50 years.
Moir acknowledges that retail conditions are challenging with increasing competition from online retailers, international retailers entering the Australian market, and the countering strategies of local retailers.
Yet Country Road in the first quarter of the current financial year has continued to outpace other fashion chains, including the Just Group portfolio, with a 54.2 per cent lift in total sales and like for like growth of five per cent.
At the current rate, Country Road is on track to surpass Just Group’s annual sales within three to four years, making a mockery of Lew’s claim to shareholders this week that his retail businesses had out performed competitors in 2013.
Lew needs to get over his chagrin with Country Road and focus on his own retail brands, particularly the major brands that have yet to respond to the attentions of “the strongest retail management team of any retail business in Australia”.
This article also appears in issue 1980 of Inside Retail PREMIUM, available November 29, 2013.