Anyone unfamiliar with the impact of the Covid-19 pandemic on the discretionary retail sector would take one look at TFG’s interim results to end-September and run for the hills.
Group revenue fell 26% to R14bn, operating profit was 88% down at R280m and the group made a headline loss per share of 91c against the positive 531c of the previous interim.
But behind these grim figures lie some remarkable metrics, as the group has used the Covid crisis to implement a series of interventions that otherwise might have taken years. Trading expenses declined 23% to R5.9bn, group online turnover soared from 8% to 14% of total turnover and the net debt to equity ratio plummeted from 52.4% to an extremely low 11%, mainly from the successful R3.8bn rights issue held during the interim period.
And to top it all, the group acquired the Jet value clothing business from the defunct Edcon for R333m, recognising a gain on purchase of R694m.
While many people still view TFG as a credit retailer, it may come as a surprise that cash now accounts for 77% of group turnover.
TFG, colloquially known as Foschini, now operates out of 4,345 stores across 31 countries, with 68% of those stores in Africa, 20% in the UK and 12% in Australia. All three territories are in recessions of varying depths.
The worst-affected segment is the UK operation as it enters another lockdown in which so-called non-essential shops are forced to close until at least December 2. This segment contributed 16% of group turnover in the interim and its turnover fell 56% comparative.
Long history
But it has established a well-known presence in this jurisdiction with brands such as Hobbs, Whistles, Phase 8, Studio 8 and Damsel in a Dress and is likely to continue slugging it out in terms of bricks-and-mortar stores and online, while a process of attrition of the competition continues.
The TFG Group has a long history of association with the UK and knows the geography well. Chair Michael Lewis and his late father, Stanley, both sat on the board of Etam, a UK womenswear retailer in the 1990s, before it was bought out by Philip Green’s Arcadia.
The group has been steadily investing through the cycle, especially in the online and e-commerce arenas, greatly increasing its e-commerce and social media presence. In TFG Africa, only Naspers subsidiary Takealot has a larger market share of online traffic.
A vitally important development is TFG’s use of radio frequency identification (RFID) tags in place of traditional bar codes. RFID stock recording occurs instantaneously without the need to scan a bar code, conferring a huge competitive advantage in stock control. TFG says it is now the largest retail implementer of RFID globally and CEO Anthony Thunstrom views it as a game-changer.
The most accurate traditional stock counts that take place two to three times a year would only yield stock accuracy of about 60%-70% confidence, whereas RFID delivers almost 100% accuracy, which is key to offering proper online product fulfilment.
The share price has risen substantially from the dark days of May when it hit a low of R62.46. Trading at R95, it is 59% off its March 2018 peak of R230.56. Using a rolling headline earnings per share of R5.49c to March 2021, the prospective price earnings ratio is a rather heady 17.3 times.
The second interim period depends on Covid developments, but once the pandemic is finally over, TFG should find itself superbly positioned to grow, with low gearing, outstanding retail technology and an unparalleled store footprint.
The last time I was at TFG’s head office in Parow to interview Ronnie Stein, the avuncular CFO at the time, there hung a rather stern painting of Stanley Lewis, former chair and one-time controlling shareholder. I suspect and hope it’s still there. Stanley would be proud of how TFG has evolved over the past few years and managed to turn the Covid crisis into an opportunity.
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