TFG hit by UK lockdowns, but saved by newly acquired Jet
TFG — owner of Markham, Foschini and American Swiss — will see headline earnings per share drop as much as 85% as revenue in the UK plummeted after the group closed down a quarter of its clothing shops in that market.
The group, which owns clothing brands in SA, Australia and the UK, faced lockdowns and forced store closures across the three territories in 2020, hitting its annual earnings to endMarch.
While TFG did well in Australia and grew sales in SA in its last quarter thanks to its purchase of discounter Jet, the group struggled in the UK.
The group announced it has been forced to impair R2.7bn of its investment in the UK. This is a balance sheet adjustment that reflects that it does not think its UK stores will generate as much future income as previously expected.
The R2.7bn impairment is more than the R2.4bn profit TFG made for the 2020 year from more than 3,000 stores on three continents.
TFG is one of the few SA retailers that have succeeded abroad, where it owns clothing stores in Australia, a country where Woolworths and Spur have lost money.
Turnover growth in Australia from January to March was up 30.4%, compared with the same period last year that included pandemic disruptions.
But the UK lockdowns have hit the group’s earnings. The group owns formal women’s retailers Phase Eight, Whistles and Hobbs, which have faced low consumer demand as evening events have been cancelled and work from home reduced sales of office-wear.
TFG said it expected basic earnings per share for the year to end-March 2020, which includes the UK impairment, will drop 160%-170%.
Earnings for the year in the UK, which makes about 20% of group revenue, fell by half. The group closed 230 loss-making stores out of a total of 971 stores in the UK.
TFG is not the only victim of the stringent lockdowns in the UK. Department store Debenhams, which is more than 240 years old, went into liquidation and the remaining stores closed their doors on Saturday.
Truworths’s shoe chain in the
UK, Office, wrote down almost R5bn of its investment over the past two years.
In its 2020 annual report, TFG described the UK as a “tough market” even before the coronavirus pandemic.
TFG CEO Anthony Thunström previously said he expects a long-term recovery in the UK as people would return to work and need formal wear, and events and parties would resume.
The group said it should benefit from the expected recovery in the UK, which “will be aided to a large extent by the extensive vaccine rollout”.
Locally, TFG has done well thanks to its September purchase of low-end retailer Jet as more South Africans switch to buying cheaper clothing.
In SA and other African countries, TFG’s sales between January and March increased 38% but like-for-like sales, excluding Jet, were up 11.2%.
In September, TFG bought 425 Jet stores in SA, Botswana, Eswatini, Namibia and Lesotho from Edcon for about R400m and gained clothing stock worth more than the purchase price.
TFG compared 2021 April sales with April 2019 — stores were closed in April 2020 due to lockdowns — and this shows that SA sales were up 25.7%, but only 3% up if Jet is excluded.
The low growth in SA, once Jet is out of the picture, suggests TFG’s brands such as Foschini and American Swiss are struggling. UBS Investment Bank’s recent research note on local apparel brands said Foschini did not resonate with consumers, but the bank was more positive about cheaper casual-wear stores The Fix and Markham.
In line with a wider trend of SA’s consumers trying to save money, UBS said it expected growth in 2021 for affordable clothing stores such as Jet and The Fix.
TFG’s online business contributed 12% of group income, up from 8% the year before. In SA, online sales spiked off a low base, growing more than 130%.