TFG, owner of Sportscene, Foschini, @home and Markham, has a cautious outlook for the year ahead as it does not expect to repeat its record performance in Australia and predicts local consumer will struggle.
In its financial year to end-March it made its highest-yet operating profits in its Australian and UK businesses.
Both countries had harder lockdowns in 2021 than SA. Last year, customers returned to the office, weddings and parties became more frequent and consumers splurged.
In Australia TFG’s business earned A$127.1m (R1.6bn) before interest, tax, depreciation and amortisation (ebitda), a 56% increase, albeit off a low base.
CEO Anthony Thunström told Business Day the performance Down Under was a record one.
TFG is one of few SA retail brands to succeed abroad, with 37% of its ebidta from its UK and Australian businesses.
Sales abroad slowed in April and May, it noted.
TFG, the brands of which include Sneaker Factory, Jet, Totalsports and Sterns, is facing a constrained SA consumer, with disposable income remaining stagnant or shrinking.
Grew business
For the past six years, store sales growth came from a rise in market share due to no meaningful economic growth in SA and weakening disposable incomes. Thunström described the environment as “very tough”.
TFG grew its business through acquisitions, including its R2bn purchase of Tapestry, owner of Coricraft, Dial-a bed and Volpes. No big purchases are planned for 2024.
Its debt rose from R1bn to R7.5bn in the past financial year as it opened 381 new stores, invested in backup battery power for stores, and bought new brands including the shoe chain Street Fever.
In December, peak retail season, people stopped visiting malls due to unprecedented load-shedding. Thunström said sales hit a brick wall. So TFG had to sell excess stock on promotion.
“Consequently, group gross margin contracted 60 basis points to 47.9% as a result of not passing on all product cost inflation to customers in SA as well as proactive management of excess inventory due to load-shedding,” it said.
In May, after the year-end, sales in SA improved, as consumers acclimatised to more frequent power cuts and headed back to malls, said Thunström.
Best measure
Winter also provides a sales boost as people buy warm clothing.
In the 2023 year, credit retail turnover grew only 11%. While fewer credit sales mean much lower turnover, Thunström said cash sales are the best measure of how much people want their brands. If customers have an account, they are limited to shopping at TFG. With cash they can shop anywhere, but choose to spend at TFG stores.
After largely being a credit business 15 years ago with 75% of sales on account, it has shifted to be a cash business, representing about 80% of sales. This is lower-risk especially as bad debt rises in SA.
As like-for-like SA retail sales grew 8.4% in the 2021 year with price inflation about 9%, TFG sold slightly less than the year before.
The business recorded about average cost inflation of 14% locally, but it did not pass this on fully.
TFG estimates load-shedding lowered TFG Africa’s retail turnover R1.5bn despite about three out of four stores — 1,875 in total — having been fitted with backup power, with plans to install more over the next few months. Total retail turnover was just more than R51bn.
Net profit advanced 4% to R3.03bn, but headline earnings per share, a common profit measure in SA that excludes certain items, fell 968.9c.
The final dividend more than halved to 150c, while the total dividend of 320c is down more than one-third.
Gross profit rose nearly one-fifth to R24.8bn. Net cash inflows from operating activity nearly halved to R3.1bn.
Update: June 11 2023
This article has been updated with new information.
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