In the depths of the SARS-CoV-2 pandemic two years ago, when things were looking especially bleak for discretionary retailers globally, TFG took the bold decision to invest heavily into the downturn.
Not long before that it had taken an equally bold decision to establish a comprehensive quick-response manufacturing capability in SA.
This was long before the disruption to supply chains caused by the pandemic and has turned out to be a major differentiating factor between TFG and its peers in the clothing, footwear, textiles and leather retail industry in the country.
This is a major reason that TFG’s performance is in a different league from its competitors and why it is likely to remain ahead of the pack. Another differentiator is TFG’s operations in the UK and Australia, both of which appear to have turned the corner and that are now showing excellent results. These operations impart a strong rand hedge flavour to TFG’s performance.
For the year to March, total revenue grew 29.7% to R46.2bn while retail turnover (which excludes non-retail revenue) rose 31.6% to R43.4bn. TFG is easily SA’s largest clothing, footwear, textiles and leather retailer, with a turnover about 2.5 times that of Truworths, 1.5 times that of Mr Price and 3.5 times that of Woolworths clothing. Online turnover grew 11.7% to R4.4bn and is just more than 10% of total group turnover.
Gross profit margin expanded from 45.5% to 48.5%, helped in no small measure by a higher proportion of full-priced sales and lower stock markdowns. This was largely due to the favourable effect of TFG Africa’s quick-response manufacturing capability, which results in lower markdowns and wastage. Operating profit saw a huge turnaround from a loss of R719.2m in 2021 to a profit of R4.8bn now.
Net debt
Headline earnings per share leapt by 409% from 197.9c in 2021 to 1,009c now. A final dividend of 330c a share was declared, making 500c for the year. Cash made up 79.9% of turnover, with credit at only 20.1%.
Net debt has reduced from R8.4bn in 2020 to R1bn now and cash on hand is now R5.7bn. Sales per square metre, also known as trading density, at TFG Africa is now R33,000. This trading density is very similar to the trading densities at Truworths and Mr Price.
All geographic jurisdictions performed well, including London, which until now has had a torrid time. In SA the clothing, footwear, textiles & leather market as measured by the Retailers Liaison Committee (RLC), a division of AC Nielsen, grew 5.9% between April 2021 and March 2022, while TFG grew 27% in the same time. Substantial market share was therefore gained. In the UK the market grew 12.7%, whereas TFG London grew 57.3%. And in Australia, the market grew 12.2% while TFG Australia grew 24%.
Significant expansion of the quick-response manufacturing capability is planned from now until 2026, by which time it is anticipated that the number of units manufactured locally will have doubled from 15-million to 30-million. Ten manufacturing business units are being built this year. TFG management believes that the lead times resulting from quick-response manufacturing are more than 50% lower than other suppliers.
Though the TFG share price has risen sharply over the past eighteen months, at the current share price of roughly R125 it is still about 43% lower than its high of R221.31 on March 1 2018. There can be little doubt that a higher interest rate environment combined with a languid local economy is not conducive to a continuation of strong earnings growth. However, considering the natural advantages over most of the competition — an emphasis on local manufacturing and good rand hedge qualities — TFG should be able to continue taking market share away from many of its competitors.
The historic price:earnings ratio is now a fairly undemanding 12.4 times and the dividend yield is a relatively attractive 4%.
• Gilmour is an independent investment analyst with Salmour Research.
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