TFG’s share price was up over 1% in mid-afternoon trade on Monday, which suggests its investors are broadly supportive.
Fashion retailer The Foschini Group (TFG), on the hunt for bargains, has made a R480-million offer to acquire “at least 371 commercially viable Jet stores” from Edcon, which is in the throes of business rescue. Given the shredding of the retail sector, it seems to be a buyers’ market at the moment.
TFG made the announcement in a SENS trading update on Monday 13 July which underscored the woeful state of South Africa’s retail sector.
In the three months to 27 June – the period that began with the hard lockdown on 27 March – TFG said the group’s consolidated retail turnover across its African, Australian and UK divisions fell 43% compared to the same period last year. This was mostly attributable to the April blowout as all of TFG Africa’s South African operations were closed from 27 March to 30 April.
Intriguingly, May was not a bad month, which suggests there is some “pent-up demand” out there even as consumer and business confidence indices have collapsed while unemployment has soared.
Excluding its jewellery stores, which remained shut, the company said retail turnover rose 7.9% in May compared to the same month last year.
But the trend lacked legs, pointing to growing consumer strain:
“All TFG Africa stores reopened from 1 June 2020 with trading more subdued in the month of June (retail turnover declined 13.8% compared to the same period in the previous financial year) with lower levels of footfall observed in the regional shopping centres,” the company said.
Still, TFG remains a viable business, enabling it to shop around for assets from other retailers such as Edcon which are in distress. In the year to March, TFG’s headline earnings per share slipped a negligible 1.1%. It is seeking to raise R3.95-billion through a rights offer and had almost R3-billion in cash at the end of its last financial year.
That stands in pretty sharp contrast to Edcon, which is drowning in about R6-billion of debt and filed for voluntary business rescue in late April.
According to the business rescue plan, Jet looks to be the jewel in Edcon’s tarnished crown compared to its Edgars chain. Jet targets mostly working-class consumers while Edgars caters more, though not exclusively, to the middle class.
Of the 199 Edgars stores around the country, just 89 are viable and 36 are marginal, while 74 are deemed either non-viable or “onerous”. In Jet’s stable of 473 stores, at least 377 are regarded as viable.
“Jet is a leading southern African retailer (by brand recognition and market share) and would provide TFG with a strategically important expansion into the value segment of the southern African retail apparel market,” TFG, which owns chains such as Foschini and TotalSports, said.
“The proposed transaction enables TFG to acquire selected parts of the Jet business, a unique opportunity which previously was not possible and is expected to give TFG significant scale at an attractive price,” it said.
The “selected parts” are the 371 stores that are regarded as viable.
If there is a silver lining here it is the fact that these stores look set to get a new lease on life instead of closing down at the cost of thousands of jobs. It also shows that there are retailers in a position to expand and invest – yes invest! – in this economy.
TFG’s share price was up over 1% in mid-afternoon trade on Monday, which suggests its investors are broadly supportive. Meanwhile, the unfolding carnage in South Africa’s retail sector may yield some more bargains on the mergers and acquisitions front. DM/BM