Resilient TFG reports 16.9% retail turnover growth

NOVEMBER 14, 2016

The TFG Group, now operating in 34 countries, has announced robust turnover growth of 16.9% to R11,4 billion, for the six months to end-September 2016. Turnover from TFG Africa (all its African operations) grew by 9.5%, with comparable sales growth of 2,1%.

The impressive results were achieved despite a subdued economic climate and difficult trading environment, which has led to a decline in earnings for most retailers.

CEO Doug Murray attributed the impressive results to diversification, international expansion, supply chain optimisation, operating cost controls, capital allocation discipline and attracting cash customers.

The Group now has 22 brands, spanning a variety of age and income groups. Over 3 220 outlets stock clothing, jewellery, accessories, sporting apparel and equipment, homeware and cellular goods and services.  

Headline earnings per share increased by 5,7% to 496,8 cents per share, up from 470,2 cents per share in the previous period. An interim cash dividend of 320,0 cents per share has been declared, a 4,6% increase.

The total cash component of turnover was 61,4% (TFG Africa: 50,2%). Group cash turnover growth was strong at 29,5% (TFG Africa: 19%). Credit turnover, however, grew by only 1,4% due to the affordability assessment regulations, specifically proof of income requirements, that have reduced the number of new accounts.

Gross margin remained broadly consistent in all merchandise categories. The Group achieved a gross margin of 49,6% (September 2015: 49,1%).

Total trading expenses increased by 19,0% over the previous period, largely due to the acquisition of Whistles, a leading contemporary fashion brand for men and women. Trading expenses in TFG Africa were well contained and increased by only 9,7%.  CEO Doug Murray said Whistles had already generated a positive EBITDA profit (earnings before interest, tax, depreciation and amortisation) due to the strategies implemented since acquisition.

The international division performed well, with earnings growth of 48% in GBP for the period. Phase Eight, offering high quality fashion to women aged 35-55 years, had 11,6% turnover growth in GBP.

Capital optimisation

As part of a capital optimisation programme, 33 Group stores were closed during the reporting period and another 129 outlets were opened: 46 internationally, 74 in South Africa and nine in the rest of Africa. This includes the first TFG store in Kenya - Sterns - in Nairobi’s The Junction mall.

Trading space in African operations increased by 5,3% during the reporting period.

The Group plans to open more than 100 new outlets in the second half of the year:  90 in Africa, and the balance internationally.

“Expanding our footprint in the rest of Africa remains a Group objective in line with our growth strategy.”

Online and merchandise turnover growth

TFG’s e-commerce offering increased with the addition of Foschini cosmetics, Markham and Fabiani to the seven brands already online. “Turnover from our online trading continues to grow above expectation for both our local and international brands,” said Murray.

Group turnover growth in the cellphone category was 20,3%, closely followed by clothing (19,6%). Homeware turnover growth was 7,3%, jewellery 4% and cosmetics 3%. Total same store turnover (TFG Africa) grew by 2,1%. Production inflation averaged 9%.

Credit turnover

The retail debtors’ book of R6,7 billion had no growth, compared to March 2016.  This was due to the impact of the affordability regulations on credit turnover and the number of active accounts. Murray estimated the negative impact on credit turnover to be in the region of R310 million for this period.

Net bad debt reduced by 4,2% compared to an increase of 4,4% in the previous period. As a consequence of the slowdown in the growth of the debtors’ book, net bad debt as a percentage of closing debtors’ book was 14% (September 2015: 14%), up from 13,4% in March 2016. The retail debtors’ book is adequately provisioned at 13%, said Murray (down from 13,2% at the previous year-end and 13,9% at end-September 2015).

Commitment to strategic objectives

Despite the uncertain outlook for the domestic and global economy, Murray said that continued commitment to strategic objectives around growth, profit, customers and leadership development would support efforts to achieve a reasonable result for the full year.

“Cost control is a key focus area, but we are continuing our investment in future growth.”

Initiatives planned for the second half of the year include working capital management and capital optimisation projects.

Concerned about the continued acceleration in crime-related losses in South Africa, TFG has already invested in various forensic capabilities to manage this risk. It has also started to roll out a revised and enhanced security strategy.

As always, festive season trading will largely determine performance for the full year.

Affordability regulations would continue to have a negative impact on credit turnover. Together with two other major listed retailers, TFG has initiated legal action against the NCR and the dti in this regard.

As a listed company that currently employs over 20 000 people, Murray said that TFG is strongly supportive of the recently announced “CEO Initiative Pledge”.  The Pledge stands against corruption and policy uncertainty which are having a negative impact on the South African economy.