CHRIS GILMOUR: Online sales shine as Australian and UK operations drag TFG down

Back in the day Foschini (as TFG was then known) gave the investment community the scantiest of information in its annual financial statements on which to make decisions. Though, to be fair, those analysts and journalists who made the effort to trek down to Parow to meet management were treated well and enjoyed a good dialogue.

Those were the days when the late Stanley Lewis was chair and ran what was in effect a family business tightly. And it worked. In those days Foschini was by far the best performer on the JSE-listed clothing retail board. But times change and Foschini changed. The firm went through a number of CEOs and seemed to lose focus to an extent. It certainly lost the mantle of best-performing clothing retailer, first to Truworths and then to Mr Price.

But more recently it has come back with a vengeance. Analysts and journalists are now confronted by a daunting array of retailing information and metrics. In the presentation, each segment head gives a rundown of the operation in the minutest detail and there is more than ample time for questions. It is arguably one of the longest presentations by a JSE-listed clothing retailer, but the information contained in it is invaluable.

However, there’s no escaping that this was another challenging time for TFG; not so much in SA, where there are nascent signs of turnaround, but more so in the group’s Australian and UK operations.

CEO Anthony Thunstrom and new CFO Ralph Buddle handled their presentations skilfully, as did the various segment heads.

For the interim period to end-September, group revenue declined 1.4% to R28bn, with TFG Africa’s sales 0.1% lower, Australia’s sales 2.4% lower and TFG London’s sales down 8.2%. Group online sales grew 9.9% to R2.8bn, or 10.7% of total sales. Much of this growth emanated from TFG Africa’s online sales via its Bash platform.

This is an outstanding achievement considering that the clothing industry has been struggling with unfair competition from Far Eastern online clothing retailers such as Shein and Temu. These operators have been using a tax loophole whereby shipments are broken up into packages of less than R500 and thus avoid paying full import duties or VAT.

This anomaly is in the process of being addressed by the SA Revenue Service, after which the playing field for all retailers, local and foreign, should be levelled. Credit sales, at 26.8% of total sales, were in line with the previous interim.

Group operating profit, at R2.5bn, was 3.4% lower than at the previous interim, while headline earnings per share fell 5.6% to 371.6c. Interestingly, the interim dividend was increased from 150c per share to 160c.

TFG London was especially badly hit by weak consumer demand and a shortage of stock caused by shipping delays of merchandise on the Red Sea. Australia continued to suffer from the impact of high interest rates and weak consumer demand, but yet the operation managed to improve gross margin significantly during the interim period.

Though the macro outlook remains challenging in all jurisdictions in which TFG operates, SA should benefit most rapidly. There has been no load-shedding since March and that situation seems set to continue. Port congestion appears to be improving and competition from Far Eastern retailers should diminish noticeably in the second half.

Interest rates have begun a secular decline, which should stimulate demand for credit, while the establishment of the

two-pot retirement system should liberate some free spending capability for consumers.

At the current share price of R152.80, TFG is trading on a historic price: earnings ratio of 16.1 times. This compares with 12.1 times for Truworths and 19.9 times for Mr Price. All JSE-listed clothing retailers have shown strength in the past few months and especially since the formation of the government of national unity. But while Mr Price and Truworths are near record highs, TFG is still well below its 2018 peak.

• Gilmour is an investment analyst.