Fashion retailer TFG reported modest sales growth in the three months ended December after Black Friday underwhelmed relative to expectations with a drop also seen in London and Australia off a high base.
Nevertheless, the shares of the retailer that owns Sportscene, Markham and Coricraft surged as much as 7.8% in midmorning trade before ending the day 3.3% higher at R101.10.
TFG is facing a weak economic climate in SA, higher competition from online retailers such as Shein and tough times in its key markets abroad where high interest rates have dampened consumer spending.
Based on reports from landlords and analysts, SA clothing retailers experienced a weak November with Black Friday being somewhat of a non-event. However, Woolworths and TFG had a better December in the run up to Christmas.
In the quarter to December, turnover in its mainstay business, TFG Africa, grew 5% while same-store sales grew just 0.7%.
All Weather Capital’s Chris Reddy said TFG’s like-for-like sales growth of 0.7% in SA looked weak over the quarter, but a strong performance in December was a positive. Sales picked up 12% in December and 6% on a like-for-like basis.
The reason for low revenue growth in same stores in SA is both a feature of a poor environment and intense competition in SA.
Euromonitor SA consultant Rubab Abdoolla said: “The economy is definitely weakening, with a rising cost of living and consumers cutting down on non-essential items. But it could also be that the market now is very competitive, so consumers have options to choose from at much better prices.”
TFG did not disclose the price increases of its local clothing so analysts were unable to say whether the volumes of goods sold dropped, but it is possible that the group sold fewer items than in the previous comparable period.
Sasfin analyst Alec Abraham said that TFG Africa could have gained market share as its local overall sales growth of 5.1% for the quarter was ahead of the official Stats SA clothing retailers segment growth of 4.1%.
Like other retailers, TFG sales were disrupted by the logistics crisis in SA over the past three months. However, the group that was partially cushioned by its local manufacturing capacity.
While TFG highlighted port delays as affecting its flow of inventory in early November, CEO Anthony Thunström said he did not think TFG would be badly affected.
Thunström said at the time: “The port issues are real. I think the impact on us is relatively minor as this has been building up for a while. We’ve been bringing stock in kind of early for peak season”.
TFG said its gross margin continued to recover from the effects of promotional activity introduced in the first half of its 2024 financial year to clear excess inventory.
Including sales in London and Australia, group turnover rose 4.5% in the October-December period year on year and 9% when measured in terms of the nine-month period from a year earlier. But sales dropped in both markets compared with a high base in 2022 when consumers exited strict lockdowns and spent on outfits for work and events.
In the third quarter, sales in Australia dropped by 7.3% and in London by 3% when measured in the UK currency.
“As previously communicated, TFG London and TFG Australia’s performances are set against last year’s exceptionally strong post Covid-19 recovery,” the company said.
TFG forecast slightly higher turnover in SA for three months ahead compared with the same period in 2023, when there were high stages of load-shedding.
That could be one reason the share price rose, according to Anchor Capital analyst Stephan Erasmus, who added the results were better than expected by sellside analysts.
Reddy had another explanation for the shares’ performance, while a third analyst said he didn’t know why they had risen when TFG sales in Australia fell. “I think the key factor that drove the share higher was that it had a very high short interest, the highest out of the all the retailers in fact, which likely led to some short covering as investors closed out their positions.”
People who short the stock bet against it but must later buy the stock and he thinks that is what happened. “We noticed a similar trend last year when poor results were met with positive share performances on the day, speaking to positioning and what was already discounted in the price,” Reddy said.
Online sales in all three of TFG’s regions combined make up almost a third of total sales. In SA, where the group launched the Bash app and website that sells all 30 TFG brands, it saw e-commerce sales grow just more than 44% to account for more than 5% of total local sales.
Update: January 24 2024
This story contains additional comment from analysts
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