The top-performing retail share once again
If there is one thing markets like it is good news. The Foschini Group (TFG) has been dishing it up in lashings of late, earning it the position as the topperforming retail share over three, six and 12 months.
TFG kicked off its good news spree last April when it announced that RCS, its joint personal loan and private label credit card venture with Standard Bank, was to be sold to BNP Paribas Personal Finance. Though RCS was rock solid it was tainted by the African Bank and JD Group unsecured lending debacles. The fallout left TFG the worst-performing fashion retail share in 2013.
The sale of TFG’s 55% stake in RCS removed the stigma. It also left TFG with a cash bonanza of R1,45bn and a balance sheet free of R3,3bn in RCS-related external funding and R4,5bn in receivables. It positioned TFG to do something big. And it has, announcing in January the acquisition of an 85% stake in UK-based upmarket women’s fashion retailer Phase Eight in a £140m (R2,56bn) cash deal. The remaining 15% stake will be owned by Phase Eight management, incentive enough to strive to maintain a five-year record of 18,9%/year sales growth and profit growth of 27,5%/year before interest, tax, depreciation and amortisation.
“Phase Eight ticks all our boxes as a perfect fit,” says TFG financial director Ronnie Stein.
Adding R2,6bn to TFG’s annual retail sales of over R14bn, Phase Eight has the makings of a game changer for TFG — international exposure.
In the UK and Ireland, Phase Eight brings with it 107 stores and 203 outlets in leading department stores, including Debenhams, John Lewis and House of Fraser.
TFG’s horizons are broadened by a further 331 Phase Eight stores in 16 countries, including Germany, Sweden, United Arab Emirates, Kuwait, Mexico, the Netherlands, Australia, Malaysia, Hong Kong and Singapore. A further eight countries are to be added to the line-up.
“Phase Eight has the potential to have at least 1 000 stores,” says Stein. Phase Eight could also provide a launch pad for TFG to take some of its 18 domestic brands international, he says.
In its home market TFG has impressed investors with its ability to reduce the impact of a slump in credit sales growth by growing cash sales aggressively. TFG grew cash sales 20,3% year-on-year in its six months to September. This was ahead of a 14,4% rise in sales reported by Mr Price over the same period — 82% of Mr Price’s sales are cash sales.
TFG’s half-year success took cash sales to 44,2% of total sales compared with 37% just three years earlier. “We are heading for a 50:50 split between cash and