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THE FOSCHINI GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1937/009504/06)
Ordinary share code: TFG
ISIN: ZAE000148466
Preference share code: TFGP
ISIN: ZAE000148516
("TFG" or "the Company" and together with its affiliates "the Group")
TRADING UPDATE FOR Q4 FY2023 AND THE TWELVE MONTHS ENDED 31 MARCH 2023
SALIENT FEATURES
- Pleasing Group retail turnover growth of 14,3% achieved in Q4 FY2023,
compared to Q4 FY2022, despite the unprecedented levels of load
shedding experienced in South Africa and global macroeconomic
challenges;
- The Group delivered retail turnover growth of 19,4% for the twelve
months ended 31 March 2023;
- TFG Africa recorded retail turnover growth of 15,6% (6,0% excluding
Tapestry*) in Q4 FY2023, compared to Q4 FY2022,which was negatively
impacted by the high levels of load shedding experienced in Q4
FY2023;
- Per the latest RLC market share figures, TFG continued to grow ahead
of the market during Q4 FY2023 and the twelve months ended 31 March
2023, further expanding market share by 0,3% in respect of both these
periods, for those categories reported. Given the superior growth of
TFG’s Sports Division and the acquisition of Tapestry Home Brands
(neither reported via RLC), TFG Africa further entrenched its
footprint, customer base and market leadership positions in all its
key categories;
- Cash retail turnover growth for TFG Africa in Q4 FY2023 of 17,8%
compared to Q4 FY2022. Cash retail turnover for Q4 FY2023 now
contributes 74,5% to total TFG Africa retail turnover and 82,5% to
total Group retail turnover;
- TFG London’s retail turnover declined 5,2% (GBP) in Q4 FY2023
compared to Q4 FY2022, which period was influenced by pent up demand
following Covid-19 lockdowns. This decline in turnover was not
however unexpected, in light of the repositioning of the TFG London
business model towards a smaller but more profitable business;
- TFG Australia delivered a 6,7% (AUD) growth in retail turnover during
Q4 FY2023 compared to Q4 FY2022;
- Group online retail turnover grew 17,7% in Q4 FY2023, whilst online
retail turnover contributed 10,8% (Q4 FY2022: 10,5%) to total Group
retail turnover;
- TFG continued to invest in capital expenditure to improve logistics
infrastructure, local manufacturing, ecommerce capabilities and its
store network (new and revamped stores); and
- Strong balance sheet position maintained despite the acquisition of
Tapestry, strategic capital investments and higher levels of load
shedding.
OPERATING CONTEXT
Consistent with many businesses in South Africa, the Group faced strong
headwinds during Q4 FY2023, as consumer pressure heightened, load shedding
levels worsened in South Africa and surplus inventories due to these
factors resulted in higher promotional activity across our various markets,
placing additional pressure on margins.
LOAD SHEDDING
TFG Africa lost, conservatively, c.360,000 trading hours during the twelve
months ended 31 March 2023 (“FY2023”). The true impact, however, has been
estimated at more than double this figure (i.e. c.730,000 lost trading
hours) as customer demand is dampened by the associated disruption and
inconvenience with reduced footfall observed before, during and immediately
after load shedding periods. We estimate the financial impact of load
shedding to have reduced TFG Africa’s retail turnover by in excess of R1,5
billion in FY2023, with a concomitant impact on inventory provisioning
which ultimately impacts on gross margins achieved.
The investment in alternative power solutions, including battery back-up
power solutions, has partially mitigated the impact of recent load
shedding, although they are less effective under the increased frequency
and extended hours experienced during stages 5 and 6**. As of 31 March
2023, 1 875 stores had back-up power, representing c.75% of TFG Africa’s
retail turnover, with plans to ensure the majority of our key stores have
the much needed back up power in place over the next few months. Capital
expenditure of c.R200 million has been spent on alternative power solutions
to date which under normal circumstances, would have been invested more
constructively in further expanding our store base as well as other
strategic capital projects.
The elevated levels of load shedding commenced in the middle of peak
festive trading season resulting in reduced available trading hours during
a key period. This resulted in a moderate increase in inventory levels, as
our proactive management of inventory in season mitigated some of this
risk. Consequently, the comparable TFG Africa store units decreased by 10%
on FY2022, however, due to provisions and markdown taken to clear the
inventory, the gross margins decreased 2,1% in the TFG Africa business for
FY2023 when compared to FY2022.
Additional unbudgeted diesel and security costs were also incurred to power
and protect certain operations and stores impacted by load shedding.
INTERNATIONAL OPERATIONS
UK consumers continued to experience household pressure as a result of cost
inflation outpacing wage growth. TFG London’s repositioned business model,
with its higher full price sales contribution, higher gross margins and
reduced cost base, allowed it to successfully navigate these market
pressures.
Australian trade remained buoyant through to the end of Q4 FY2023 despite
elevated inflation and increased interest rates.
TFG AFRICA PERFORMANCE UPDATE
TFG Africa retail turnover growth of 15,6% was achieved in Q4 FY2023
(compared to Q4 FY2022) despite the significant levels of load shedding.
Positive retail turnover growth was achieved across all key merchandise
categories, with Homeware and Furniture retail turnover growing at 119,9%
(4,5% excluding Tapestry*). Growth in Clothing retail turnover was 8,3%
during Q4 FY2023.
Lost trading hours due to elevated blackouts and dependence on alternative
electricity curtailed TFG Africa's retail turnover, with retail turnover
growth excluding Tapestry at 6,0%* in Q4 FY2023 (compared to Q4 FY2022).
Like-for-like retail turnover for the Clothing and Homeware merchandise
categories grew 0,8% and 1,9% respectively during Q4 FY2023 (compared to Q4
FY2022).
TFG remains confident in its ability to innovate and develop its existing
brands to ensure that they are best positioned to grow market share,
notwithstanding the challenging trading environment.
The growth / (decline) in TFG Africa's retail turnover, compared to the
same period in the previous financial year, in the respective merchandise
categories was as follows:
Merchandise Q4 FY2023 Q4 FY2023 H1 FY2023 H2 FY2023
category vs. contribution vs. vs.
Q4 FY2022 to TFG Africa H1 FY2022 H2 FY2022
retail
turnover
Clothing 8,3% 66,9% 16,5% 11,6%
Homeware 119,9% 15,9% 56,9% 114,3%
Cosmetics (1,3%) 2,9% 5,8% (0,6%)
Jewellery (6,8%) 4,2% 4,8% (3,5%)
Cellphones 0,4% 10,1% 0,2% 2,2%
Total TFG Africa 15,6% 100,0% 16,9% 17,4%
Merchandise category FY2023 FY2023
vs. contribution to
FY2022 TFG Africa retail
turnover
Clothing 13,8% 72,9%
Homeware 89,7% 12,0%
Cosmetics 2,2% 2,8%
Jewellery 0,0% 4,1%
Cellphones 1,3% 8,2%
Total TFG Africa 17,2% 100,0%
Cash retail turnover for Q4 FY2023 grew 17,8% compared to the same quarter
in FY2022, ahead of credit retail turnover growth, and contributed 74,5% to
total TFG Africa retail turnover for the period. For the twelve months
ended 31 March 2023 cash retail turnover grew 19,7% compared to the same
period in FY2022 and contributed 72,7% to total TFG Africa retail turnover
for the period.
Credit retail turnover for Q4 FY2023 grew by 9,6% compared to the same
quarter in FY2022. For the twelve months ended 31 March 2023 credit retail
turnover grew by 11,0% compared to the same period in FY2022. Average
acceptance rates for new accounts remained conservative at 19% for the
twelve months ended 31 March 2023 (FY2022: 25%) and limited the increase in
bad debts.
Online retail turnover for Q4 FY2023 grew by 44,9% compared to the same
quarter in FY2022, as retailers and shopping centres continue to grapple
with constant ]electricity supply disruptions and customers turn to
ecommerce channels and our recently launched BASH platform. Online retail
turnover contributed 4,0% of total TFG Africa retail turnover for Q4 FY2023
(Q4 FY2022: 3,2%). For the twelve months ended 31 March 2023, online retail
turnover grew 33,2% and contributed 3,5% to total TFG Africa retail
turnover (FY2022: 3,1%).
TFG LONDON PERFORMANCE UPDATE
TFG London's retail turnover performance for Q4 FY2023 was off a high base.
Performance in the comparative period last year was exceptional (end of the
autumn/winter season) as the UK fully came out of COVID-19 conditions and
performance was boosted by a heightened level of social occasions and back
to work shopping, which necessitated the restocking of wardrobes.
Pleasingly, in line with their repositioned business model, gross margins
were preserved and this, coupled with effective cost management, resulted
in a strong bottom line.
The (decline) / growth in TFG London's retail turnover compared to the same
period in FY2022 was as follows:
Q4 FY2023 H1 FY2023 H2 FY2023 FY2023
vs. vs. vs. vs.
Q4 FY2022 H1 FY2022 H2 FY2022 FY2022
Retail turnover growth
(5,2%) 21,2% (1,1%) 9,4%
– GBP denominated
The contribution from online retail turnover for the quarter was at 49,6%
(Q4 FY2022:45,8%).
TFG AUSTRALIA PERFORMANCE UPDATE
TFG Australia continued to deliver growth in retail turnover during Q4
FY2023, notwithstanding the more normalised base for the same period in
FY2022.
The growth in TFG Australia's retail turnover compared to the same period
in FY2022 was as follows:
Q4 FY2023 H1 FY2023 H2 FY2023 FY2023
vs. vs. vs. vs.
Q4 FY2022 H1 FY2022 H2 FY2022 FY2022
Retail turnover growth
6,7% 48,7% 15,4% 29,8%
– AUD denominated
Online retail turnover for Q4 FY2023 was down 4,8% compared to the same
quarter in FY2022, contributing 6,4% to total TFG Australia retail turnover
for the quarter (Q4 FY2022: 7,2%). Prior period online retail turnover was
bolstered by shoppers during lock-down, prior to them returning to stores
during this period.
GROUP PERFORMANCE UPDATE
Despite tougher trading conditions across all regions, the Group sustained
pleasing retail turnover growth into Q4 FY2023, delivering retail turnover
growth of 14,3% compared to a very strong base during the same period in
FY2022.
The retail turnover growth when compared to the same period in FY2022 in
each of our business segments was as follows:
Business segment Q4 FY2023 Q4 FY2023 H1 FY2023 H2 FY2023
Vs. contribution vs. vs.
Q4 FY2022 to Group H1 FY2022 H2 FY2022
Retail
Turnover
TFG Africa (ZAR) 15,6% 68,7% 16,9% 17,4%
TFG Australia (ZAR) 20,7% 17,4% 56,5% 23,1%
TFG London (ZAR) 1,7% 13,9% 20,3% 1,7%
Group (ZAR) 14,3% 100,0% 23,5% 16,2%
Business segment FY2023 FY2023
vs. contribution
FY2022 to Group
Retail
Turnover
TFG Africa (ZAR) 17,2% 68,5%
TFG Australia (ZAR) 37,4% 18,2%
TFG London (ZAR) 10,3% 13,3%
Group (ZAR) 19,4% 100,0%
Group online retail turnover has seen an uptick in Q4 FY2023 with growth of
17,7% compared to the same period last year, driven largely by the TFG
Africa business segment, which benefitted from the effects of the Tapestry
acquisition and the recent launch of BASH. The contribution from online
retail turnover to total retail turnover for the quarter was 10,8% (Q4
FY2022: 10,5%). For the twelve months ended 31 March 2023, Group online
retail turnover grew 6,9% (FY2022: 11,7%) and contributed 9,1% (FY2022:
10,2%) to total Group retail turnover and continues to be the area of
strategic focus for the group.
UPDATE ON THE ACQUISITION OF STREET FEVER – FULFILMENT OF CONDITIONS
PRECEDENT
Shareholders of TFG (“Shareholders”) are referred to the announcement
released by the Company on the JSE Stock Exchange News Service on 23
January 2023 advising that the Group, through its value athletic and
leisure footwear retail brand, Sneaker Factory, had entered into an
agreement to acquire Street Fever, an independent retailer of affordable
branded footwear and apparel ("Transaction").
Shareholders are hereby notified that all conditions precedent to the
Transaction have either been fulfilled or waived as set out in the
agreement, it being noted that the approval from the relevant competition
authorities was obtained. Accordingly, the Transaction is now unconditional
in accordance with the terms of the agreement and was implemented with an
effective date of 26 April 2023. The integration has been quick and
seamless.
OUTLOOK : CONSOLIDATION PHASE AND DEFENDING GROSS MARGIN
TFG has endeavoured to mitigate as much of the load shedding challenges it
has to deal with on a daily basis. The year ahead, however, is expected to
remain challenging especially for the South African business where load
shedding and increasing consumer pressure are expected to worsen.
Despite the Group’s high level of conviction around a number of clearly
defined and identified growth levers and organic investment opportunities,
the Group, in light of the current load shedding and global economic
uncertainties, is adopting a very prudent approach and treating FY2024 as a
year of consolidation and focusing on improving operating leverage.
Operationally, considering the current macroeconomic conditions and the
likelihood of continued high levels of load shedding, there will be a
continued focus on controlling inventory purchases so as to defend gross
profit margins and reduce the absorption of working capital, with FY2024
inventory purchases expected to be below those of FY2023 on a like-for–
like-basis. Expense control is also a key lever and during the second half
of FY2023, support and administration expenses of approximately R220
million were frozen. Similar cost savings initiatives are planned for the
year ahead. We also revisited our planned capital allocation for the year
ahead, and have curtailed our planned new store openings, with the result
that our store capital expenditure is likely to approximate half of what we
spent in FY2023. TFG’s future brand and store roll-out pipeline remains as
robust as ever, however, current market conditions require a slower
execution of this roll-out.
Trade since the year-end has been muted across all three of our trading
territories. For the trading month of April 2023 (compared to April 2022),
TFG Africa had retail turnover growth of 12,5% (3,2% excluding Tapestry*),
TFG London had negative retail turnover growth of 14,3% (GBP) and TFG
Australia had negative retail turnover growth of 3,6% (AUD. Both TFG London
and TFG Australia are up against a very high base in the comparative period
which was driven by a post COVID-19 heightened demand for occasionwear and
back to work shopping as mentioned in the previous paragraphs.
ANNUAL FINANCIAL RESULTS
Shareholders are advised that the Group expects to release its annual
financial results for the 12 months ended 31 March 2023 on SENS on Friday,
9 June 2023.
A live webcast of the annual financial results presentation will be
broadcast at 10:00 am (SAS) on Friday, 9 June 2023. A registration link for
the webcast will be available on the Company’s website at
www.tfglimited.co.za. The slides for the annual financial results
presentation will be made available on the Company’s website prior to the
commencement of the webcast. A delayed version of the webcast will be
available later the same day.
* Pro forma management account numbers used to calculate an indicative
retail turnover growth.
** Stage 5 Load shedding = up to 8 hours of no electricity a day & Stage 6
Load shedding = up to 9,5 hours of no electricity a day.
PROFORMA INFORMATION
Pro forma management account information for Tapestry was used in this
announcement for illustrative purposes only to provide an indicative retail
turnover growth for TFG Africa excluding the acquired Tapestry business.
Tapestry retail turnover for the period since acquisition on 1 August 2022
to 31 March 2023 was removed as if the acquisition did not take place.
This pro forma information, because of its nature, may not be a fair
reflection of the Group's results of operations, financial position,
changes in equity or cash flows. There are no material events subsequent to
the reporting date which require adjustment to the pro forma information.
The pro forma management account retail turnover numbers used were:
Q4 FY2023 Q4 FY2022 Growth
Rm Rm %
TFG Africa
retail turnover
including
Tapestry 7 197,7 6 225,7 15,6
Less: Tapestry
retail turnover# 600,2 - -
TFG Africa
retail turnover
excluding
Tapestry 6 597,5 6 225,7 6,0
Q4 FY2023 Q4 FY2022 Growth
Rm Rm %
TFG Africa
Homeware retail
turnover
including
Tapestry 1 143,7 520,0 119,9
Less: Tapestry
retail turnover# 600,2 - -
TFG Africa
Homeware retail
turnover
excluding
Tapestry 543,5 520,0 4,5
April 2023 April 2022 Growth
trading month trading month
Rm Rm %
TFG Africa
retail turnover
including
Tapestry 3 497,8 3 109,4 12,5
Less: Tapestry
retail turnover# 288,2 - -
TFG Africa
retail turnover
excluding
Tapestry 3 209,6 3 109,4 3,2
# The adjustment is based on management accounts. The Group is satisfied
with the quality and completeness of these management accounts which are
unaudited.
The directors are responsible for compiling the pro forma financial
information in accordance with the JSE Limited Listings Requirements and in
compliance with the SAICA Guide on Pro Forma Financial Information. The
underlying information used in the preparation of the pro forma financial
information has been prepared applying consistently the accounting policies
in place for the year ended 31 March 2023.
Shareholders are advised that the financial information on which this
trading update is based has not been reviewed nor reported on by the
Company's external auditors.
Cape Town
10 May 2023
Sponsor and Corporate Broker:
Rand Merchant Bank (A division of FirstRand Bank Limited)
