Stock at Jet Stores is “flying off” the shelves, with owner TFG saying the new business is doing better than it expected, even as the listed clothing retailer posts its first headline loss in memory.
The owner of Foschini, Markham and sportscene bought 425 profitable Jet Stores for about R400m on September 25, giving it a presence in 200 new locations where it had minimal or no presence.
Jet sells affordable clothing and shoes in SA and neighbouring countries, which has allowed TFG to tap into the value end of the market, target the constrained consumer and compete with Mr Price and Pepkor-owned Ackermans.
Most TFG brands, including American Swiss, @Home and Fabiani, sell to a wealthier consumer.
In the six months to September, the group swung into a headline loss of R221m, from headline earnings of R1.2bn previously, while group revenue fell almost R5bn to R13.9bn as Covid-19 lockdowns shuttered stores in the UK, SA and Australia for all of April.
Headline earnings is a widely used profit measure in SA, and excludes certain one-off items to better represent underlying performance.
TFG expects Jet revenue to equal between R5bn and R6bn a year once it is properly stocked, which is about the same amount of revenue it lost across the entire TFG Group business in its first half due to Covid-19 lockdowns.
CEO Anthony Thunström said Jet had been held back and “starved” of stock and investment due to the financial troubles its previous owner Edcon had faced and business rescue restrictions.
But as new stock and new cellular products had arrived in stores in the past two weeks, it was selling as fast as goods were unpacked, which he said was “gratifying”.
TFG gained R473m of Jet stock when it bought the chain.
Thunström said the upside of the stores having too little inventory was that only 25% of the stock was older than six months, meaning it was a “once-in-a-lifetime opportunity to start a retail business” from scratch.
TFG had spent less than R500m refurbishing the Jet Rosebank store in Johannesburg and said it “looked as good as any value store in the world” and had seen double-digit growth.
The group plans to spend between R50m and R70m over the next 18 months upgrading the most traded Jet stores, where it predicts the highest growth.
It then aims to spend R30m a year after that on redesigning other stores. It is also upgrading the Jet IT system.
While the TFG group made a loss, the Jet acquisition helped it recognise a provisional R694.3m gain on the purchase, so it reported a profit of R416.3m for the six months to end-September, from R1.23bn previously.
Asked if its six-month headline loss, stripping out the Jet purchase, was its first ever, Thunström said it “almost certainly” was.
Using Bloomberg-reported data, Business Day could not find any annual losses in the business dating back to 1994 or any half-year losses in recent years. Thunström said the “headline loss was entirely down to Covid-19 lockdowns”.
Its stores lost about 26% of its trading days in SA and Australia and 39% in trading days in the UK due to lockdowns.
Its UK turnover, which makes up 15.5% of the business, declined drastically by 56.2% in pounds in the six months to September due to store closures in March and April and weak sales as its UK brands sell evening and workwear, which is not in demand.
In the short term, the UK business would continue to struggle under a new lockdown in the UK as stores will be closed until early December.
Thunström said in about a year, when the Covid-19 epidemic had subsided, there would be pent-up demand in the UK as people would socialise again. “Our brands will do well after the painful Covid-10 period.”
Trade in SA brands has been volatile since May. Asked about SA’s weak economic outlook, he said: “We always say to our teams we still have to go and trade regardless what the economy is like.
“We have had five consecutive years of GDP per capita decline in SA. We are getting poorer every year, yet TFG has managed to grow significantly over that period.”
TFG’s share price closed 5.69% higher at R93.31.
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