TFG going for rights offer to expand, but is not interested in Jet or Edgars

TFG is planning on a R3.95bn rights issue to raise capital from shareholders so it can reduce its debt, remain stable in the face of the globally constrained consumer and perhaps snap up a struggling retailer.

The company is, however, not interested in buying Jet or Edgars, currently up for sale.

The owner of Foschini, American Swiss, Sportscene and @Home is eyeing the international market for opportunities that may arise as clothing companies globally take strain due to lockdowns. 

 “There is a lot of fallout in retail locally and internationally. There is lots happening. If we see an opportunity, we want the right balance sheet if a brand does fit with us.”  TFG CEO Anthony Thunström told Business Day.

In stark contrast to other SA businesses like Woolworths, which  has struggled abroad, with massive write downs at David Jones in Australia, TFG has been successful in its overseas investments. It released its annual results on Thursday.   

It owns Rag Apparel Group in Australia which grew sales 9.6% in the year ending March 31 and UK clothing brands Hobbs and Whistles, which remain profitable, but under pressure with income declining 4.5 %. Thunström said the UK business; sales were flat until December but dropped in 2020 as sales at the UK-owned Asian stores in places like Hong Kong were hit early on by the coronavirus pandemic. 

Raising capital to expand did not mean TFG was interested in Edgars and Jet, whose parent Edcon is in business rescue and turnaround specialists have since put the two chains up for sale.  

 “There has been lots of speculation that we are the frontrunner to buy Jet. We are not interested in either business or Edcon as a whole," Thunström said, adding that  Jet's IT and logistics systems were too "entangled" with Edgars so buying it separately was not viable. 

TFG has also increased its debt facilities by an additional R3.3bn in case of future weak sales as constrained consumers emerge from global lockdowns. 

In a statement TFG said:  “We expect that material uncertainty, trading disruption and risk will continue in all three of our major territories — SA, the UK and Australia."

For the year ending March 2020, group retail turnover was up 3.6% to R35,3 billion, with profit equalling R2.4bn down 7.4% from the year before.

Headline earnings per share, a widely used measure of profit in SA that strip out one off, non-trading items, was down 1,1% to 1 174,4 cents and the company  is not paying a dividend. Most SA companies have retained cash instead of paying dividends in order to cope better with the poor economy. 

TFG’s creditors have also agreed to raise its net debt to core earnings, or ebitda, ratio from 2.5 times to 3.5 times for the March 2021 fiscal year. Net debt to ebitda is a key measure used by lenders and shows how well a company’s earnings can cover its debt.

However, it still aims to reduce its ratio to 1.5 times in the medium term and was at 2 times by March this year.

In April, its local clothing brands including The Fix and Markhams didn't open and American Swiss and Sterns jewellers remained closed until the end of May. Sales at all brands in the largest malls, known as Tier 1 malls such as Canal Walk and Sandton City remain weak due to low footfall.

Thunström said the TFG along with four other clothing retailers didn't “find common ground"  in rental reduction negotiations with the PI-Group, representing all landlords. 

TFG had better success reaching "win-win" agreements individually with landlords about how much rent to pay for the months with no or weak trading. 

The retailer plans to further invest in online sales, which it foresees reaching 10% of all local sales by 2025. Thunström said the lockdown had created 'structural change" in the SA market by increasing the number of people shopping online. Online sales in SA were about 5 % currently, up from 1% at the beginning of the year. 

TFG remains committed to local manufacturing in the Western Cape where it employs almost 10 000 people and says local clothing is more profitable than importing goods. This is because it takes about 48 days to order and make an item, making it quicker to respond to fashion trends and design what is selling well.