TFG reports strong gross profits despite tepid revenue growth

Shoppers walk past a Foschini store owned by TFG. Picture: Karen Sandison / Independent Newspapers

Shoppers walk past a Foschini store owned by TFG. Picture: Karen Sandison / Independent Newspapers

Published Nov 11, 2024

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The Foschini Group (TFG) saw markedly strengthened gross profits in the face of tough trading conditions in all territories in the six months to September 30 on the back of weak top line growth.

Things started to look up post the interim period. However, in the 5 weeks thereafter TFG Africa sales growth was up 8.3% compared to 0.1% decline for the interim period, whilst both London and Australia businesses posted stronger growth.

The share price gave up 2.53% to R143.15 on Friday after the release of the results - the price is nevertheless up 40.3% over a year.

Echoing the weak top-line growth of peers such as Truworths, mainly due to lower consumer disposable incomes, TFG’s revenue increased by only 0.6% in TFG Africa in the six months, and was 8.2% lower in TFG London and 2.4% lower in TFG Australia.

Smalltalkdaily Research investment analyst Anthony Clark said the recent signs of improved consumer spending that TFG had reported was reflected in his own research of a number of listed and unlisted companies in South Africa, which had reported “green shoots” of rising demand.

He said fuel prices being lower by about 25% and relatively low food inflation had eased consumer disposable incomes, and the Two-Pot pension pay outs and prospect of another interest rate cut later this month should further boost consumer spending over the Christmas period.

Group headline earnings per share (HEPS) fell 5.6% to 371.6 cents. The interim dividend was raised 6.7% to 160 cents a share.

“All three territories faced extended periods of macroeconomic headwinds coupled with a high clearance-driven sales base in TFG Africa last year,” CEO Anthony Thunström said.

“However, our focus on retail fundamentals and our investments have contributed to a record gross profit performance and stronger margins in our businesses.”

He said TFG Africa’s revenue was boosted by 11.6% sales growth in cosmetics and 6.1% in homeware. Benefits from the Tapestry acquisition were supported by introducing credit and leveraging off the TFG retail platform.

Tapestry’s vertically integrated furniture manufacture saw TFG selling more than 50 000 sofas a year at improved margins, with more than 80% locally made.

The South African business extended its beauty offering from being concentrated in its Foschini business to more of its 26 brands in South Africa. The Africa business unit gross profit rose by 6.6%.

TFG London saw inventory delays due to Red Sea disruptions, high inflation and interest rates. Its focus was on growing the direct-to-consumer channel and protecting gross margin, but this was insufficient to offset the lower sales, with gross profit 3.1% lower.

TFG Australia also suffered from weak consumer spending power. Despite a 2.4% sales contraction, a focus on inventory management saw the gross margin improve by 120 basis points to 65.1%.

E-commerce continued to surge in South Africa following investment in the Bash platform. The app had received more than 5 million downloads and was the number one South African fashion shopping app, helping online sales to grow 47.9% in TFG Africa, and now contributing 5.6% to sales.

Thunström said the recently acquired British fashion and lifestyle retailer White Stuff, for £51.7m (R1.17 billion), had a solid financial track record and in the year to April 30 achieved revenue of £154.8m and earnings before interest tax depreciation and amortisation of £8.6m.

White Stuff has 113 stores and 46 concessions in the UK. The business also operates 6 stores and 25 concessions across Europe.

“We will continue to focus on margin improvement, inventory management, cost control and ensure ongoing realisation benefits from key strategic projects,” Thunström said.

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