The top-per­form­ing re­tail share once again

Financial Mail - Investors Monthly - - Analysis -

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

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