Our opinion on the current state of TFG

The Foschini Group (TFG) is an international retailer of 28 fashion brands. It has 4,083 trading outlets in 32 countries around the world, with divisions in London and Australia, aside from its extensive presence in the South African market. One of the notable achievements of TFG is its successful business establishment in Australia, where many other retailers (like Woolworths) have failed. TFG bought the Retail Apparel Group (RAG) in Australia for just over $300 million in 2017. TFG has allowed the Australian management team virtual autonomy in managing the business and has not attempted to manage it from South Africa.

Over the long term, TFG has been a consistent performer in one of the most difficult industries in South Africa, with stiff competition from overseas brands and local clothing retailers. In its results for the year to 31st March 2024, the company reported revenue up 8.9% and headline earnings per share (HEPS) up 0.2%. The company said, "Cash retail turnover increased by 9.9% compared to the prior period and now contributes 82.3% to total Group retail turnover. Online retail turnover increased by 22.0% and now contributes 9.9% to total Group retail turnover. The Group maintained its gross margin percentage and increased gross profit by 8.6% to a record R27.0 billion in line with the growth in retail turnover."

We regard TFG as the best of the retail clothing companies, and it is well diversified overseas, which gives it a rand hedge element. Retail is normally very much impacted by the business cycle, but the TFG board has shown its ability to manage the business profitably in many difficult environments where others have failed. Following COVID-19, the share moved up steadily until October 2022, when it began to reflect the impact of rising interest rates and loadshedding on the South African consumer.

We believe that this remains a very well-managed company which should be accumulated on weakness.