TFG (The Foschini Group), the diversified retail group now trading globally in 31 countries, has announced impressive local and international March 2016 year-end results with total retail sales growth of 31,2%.
Excluding the impact of Phase Eight, the international womenswear brand acquired in January 2015, the group achieved retail sales growth of 11,6%, with comparable sales growth of 5,7%.
Headline earnings per share from continuing operations excluding the impact of once-off acquisition costs increased by 17,6% to 1 055,8 cents per share from 897,9 cents per share last year. The acquisition costs relate to the acquisition of Phase Eight last year, as well as the acquisition of Whistles in March this year.
A final scrip distribution with a cash alternative of 385,0 cents per share has been declared, an increase of 18,5%. Accordingly, the total distribution for the year amounts to 691,0 cents per share, an increase of 17,5%, reflecting the growth in the underlying continuing operations.
“Our brands offer broad LSM appeal from value to upper end,” said TFG CEO Doug Murray. “Given our continued focus on cost containment, our ongoing South African and African expansion strategy, complimented by our international acquisitions and growth, we have delivered good returns for our shareholders, despite the tough economic climate and market uncertainty.”
Murray said cash sales growth was stronger in the second half of the year, resulting in full year cash sales growth of 18,4% (including Phase Eight: 59,8%). Although credit sales growth was slightly slower in the second half, full year credit sales growth was up to 5,9% from 4,3% the previous year.
Turnover growth in the clothing merchandise category was 41,8% including Phase Eight (13% excluding Phase Eight) followed by homeware and furniture 11,7%, cosmetics 9,2%, cellphones 7,4% and jewellery 7%.
Total same store turnover (excluding Phase Eight) grew by 5,7% while product inflation averaged approximately 8%.
The group’s overall gross margin has improved from 47,3% to 49,7%, mainly due to the higher Phase Eight clothing margin. The margin in all other product categories remained consistent with the previous year.
Continued focus on cost control has resulted in expenses increasing by 9,4% for the year, excluding Phase Eight. “We remain committed to ensuring that our costs are well controlled, while maintaining our investment for future growth,” said Murray.
South African and Africa expansion
In line with its strategy of being the leading lifestyle fashion retailer on the African continent, TFG increased its reach by 209 stores in South Africa and the rest of Africa, and closed 27.
TFG currently operates out of 2 462 stores on the African continent and plans to open in excess of another 150 stores within the next 12 months which will increase their African trading space by approximately 6%. “We have achieved this for several years and are confident this will continue because of the diversity of our offerings,” said Murray. “We have a comprehensive stable of brands, at different levels of maturity, and many are not yet fully represented in shopping centres. “
The group currently trades out of 176 stores across six countries in the rest of Africa. These stores, with the exception of Namibia, traded well during the year with turnover growth of 31,6% and same store turnover growth of 14,6%. Including Namibia, total turnover growth in the rest of Africa was 16,6%.
The upmarket Phase Eight brand, with its headquarters in the UK, now trades out of 542 outlets in Europe, Asia, the Middle East, Australia and America, with 108 outlets opening during the year and 10 closures.
“Phase Eight has met our expectations and all our strategic targets that we set for the year and good progress has been made with the integration of this business. We plan to open at least 50 more outlets this financial year.”
Iconic men’s and women’s fashion brand Whistles which was acquired at the end of March 2016 currently trades out of 121 outlets in the UK and internationally, both through stand-alone stores and concessions in department stores such as Harrods and Bloomingdales as well as online. TFG intends opening 20 more Whistles outlets this year. (As the Whistles acquisition was at the end of TFG’s financial year, these results do not include any trading relating to the brand. However, their at-acquisition balance sheet has been consolidated as at 31 March 2016.)
Excluding Phase Eight, TFG was operating out of 2 462 stores at the year-end, an increase in trading area of 6,6%.
E-Commerce is now a material contributor to TFG sales, and the omni-channel roll-out continued during the year with the addition of sports division brands Totalsports, Duesouth and Sportscene. This has proved very successful, said Murray, and Foschini cosmetics, @home furniture, Markham and Fabiani will be added to the online offering this year.
Credit turnover growth slowed in the second half to 5,1% (from 6,8% in the first half) resulting in full year credit turnover growth of 5,9%, up from 4,3% at the previous year-end.
The retail debtors’ book of R6,7 billion has increased by 8%. Net bad debt reduced by 7,4% compared to an increase of 9,4% in the previous year, following the group’s continued investment in credit analytics and capabilities.
Net bad debt as a percentage of closing debtors’ book reduced to 13,4% from 13,6% at the previous year-end, and from 14,0% at the half-year, very much within management’s expectations. The retail debtors’ book is adequately provisioned at 13,2%, down from 13,6% at the previous year-end.
“It remains our intention to bring our recourse debt-to-equity ratio from its current value of 55,6%, closer to our medium term target of 40%,” said Murray.
The group anticipates continuing strong cash sales growth, but remain concerned about the impact of the introduction of affordability regulations on their ability to open new accounts which will put pressure on credit sales. This challenge is being addressed by streamlining the in-store and call centre application process, supported by technology to make opening an account as seamless as possible.
“The outlook for both the global and domestic economy remains challenging and uncertain,” said Murray, “but our previously reported strategic objectives around growth, profit, customer and leadership remain appropriate.
“Excluding Phase Eight and Whistles, the turnover growth for the first seven weeks of the current financial year is at similar levels to last year and broadly in line with management’s expectations. Both Phase Eight and Whistles are trading ahead of last year and within management’s expectations.