42 of 2023

Newsletter No 42/27 October 2023                              


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Falke South Africa appoints new CEO

By Ronelda Visser

The fourth generation, family-owned German textile group Falke has appointed Michael de Koker to manage their South African operations.  De Koker has a well-rounded background in the manufacturing, retail, and distribution industries.

Having headed up some of the largest and well-known brands specifically Guess SA/Africa, being retail director of Guess Australia and more recently the CEO of a proudly South African clothing manufacturer, De Koker brings a wealth of experience to Falke South Africa.  De Koker worked for the Studio 88 group, Woolworths and other retailer and is well equipped to lead Falke SA in an ever-challenging South African retail landscape.

Falke has built its reputation on cutting-edge design, innovation, and quality. The technological sophistication and quality of its advanced performance sports range and men’s and women’s fashion offerings, gives Falke top ranking on the global platform.  Established in 1974, Falke SA manufactures million’s pairs of socks per year for the domestic and export market, as well as high-end hosiery from its Rosslyn facility. The company is a significant employer in its two locations in Belville and Rosslyn.

“Our staff is our biggest asset and their loyalty to Falke is the key to our achievements.  We pride ourselves on the commitment of our staff.  I intend to create an inspired, rewarding and involved culture, centred around quality and customer satisfaction,” states De Koker.

De Koker is excited at the opportunity to lead Falke and will be doing so by staying true to the core values of this phenomenal brand that has evolved alongside the ever-expanding sport industry.  “Falke has always put the customer first and continues to do so through ongoing product development that caters to sport specific requirements. Whether amateur, professional, or simply living a healthy lifestyle, Falke supports our customers every step of the way,” concludes De Koker.

Falke strives to limit their carbon footprint through groundbreaking BCOOL recycled technology using re-engineered yarns from sustainably sourced, second-generation polymers, obtained from trusted suppliers. FALKE’s ranges of high-quality sport and fashion socks, legwear and hosiery are available at leading outlets as well as online at www.falke.co.za.

Published in Business, Economy, Finances, Banking and Insurance.

Cut your cloth to suit

by The Finance Ghost

Picture: 123RF/Denis Karpenkov

Any decision to buy a local retailer needs to be made in the context of the broader macroeconomic picture

Just before all hell broke loose in 2020, The Foschini Group (TFG) was trading at R112.

In mid-2021, it was trading above R160. Since then, there’s been a steady decline as interest rates have increased and  consumer conditions globally have deteriorated. Trading at just under R100 at time of writing, the decline over 12 months is more than 16%.

If you need a reminder of just how difficult it is for South African retailers, data going back to 2005 suggests a compound annual growth rate (CAGR) over that period of just over 5%. The past decade really ruined it, with a slightly negative CAGR. The dividend barely makes up for this, so your money would’ve been a lot better off in the bank.

The reason for the history lesson is that investors need to understand when they are swimming upstream. Any decision to buy a local retailer needs to be made in the context of the broader macroeconomic picture. There is no point in taking single stock exposure that can’t materially beat the index. When assessing local retailers, you also need to remember that many of them (like TFG) also have offshore operations that need to be considered.

Detailed results for the six months to September are due on November 10. A trading statement guided that HEPS for the period will be between 15% and 25% lower (putting it in line with the first half of 2021 as a best-case scenario), with various reasons for this. There’s a high base effect in TFG London and TFG Australia. We have the obvious problem of macroeconomic pressures in South Africa. Also, the company decided to acquire Tapestry (which sells consumer discretionary items) and take on a great deal of debt into a rising interest rate cycle — a risky play that will hopefully work out over the long term even if there’s pain in the short term.

Tapestry skews the numbers, as any major acquisition always brings loads of new revenue (and costs) onto the financials. At least they do disclose sales growth excluding the impact of Tapestry. TFG Africa sales growth came in at 16.1% including Tapestry, or 9.7% excluding that acquisition. At category level, the Tapestry deal affects only the Homeware category, which is 77.2% larger year on year and now contributes 13.7% to TFG Africa turnover.

Clothing (72.3% of TFG Africa turnover) is still the most important category, growing 11.8%. The overall growth rate was brought down by an unexciting performance in cosmetics and cellphones and a flat performance in jewellery.

It’s also worth highlighting 34% growth in online turnover thanks to the launch of Bash as the new online platform. The group has invested heavily in competing online, something that is unavoidable as consumers become accustomed to doing their shopping at home. It’s an expensive way to service customers.

Cash turnover grew 21.8% for TFG Africa and credit turnover increased by only 2.9%, despite average acceptance rates for new accounts being stable. Cash turnover represents 73.4% of the TFG Africa total.

Though TFG doesn’t run fridges, it’s still difficult to sell clothes in the dark

This sounds OK, so why the problematic earnings performance? Well, the first issue is gross margin, which is down 330 basis points  against the comparative period. To drive sales growth, the company needed to be aggressive on price. Inventory is down 4% year to date, so it came into this period overstocked and has paid the price in gross margin.

The announcement doesn’t give any details on TFG Africa store expenses, but one can assume the impact of load-shedding and the usual pressures such as security costs is significant.  Though TFG doesn’t run fridges, it’s still difficult to sell clothes in the dark. The gross margin pressure offsets much of the benefit of sales growth, and expense growth may well offset the rest.

Moving abroad, things aren’t heading in the right direction. TFG London’s retail turnover fell 12.4% in local currency, an impact that is cushioned by the rand. The group is focusing on gross margin rather than top-line growth in that business. It’s much the same in TFG Australia, where retail turnover fell 6.6% in local currency. In rand terms, TFG Australia grew 1.7% and TFG London grew 3.7%. They contributed 18% and 14.5% to retail turnover respectively in the 22 weeks to August 26.

Using the midpoint of the headline earnings guidance, the last 12-months is 845c a share. This puts the group on an earnings multiple of 11.7. The inverse is an earnings yield of 8.55%. That’s not enough to justify the risk in this environment.  

Pick n Pay Clothing collabs with young designer

L to R: Kiav Mitoo, Hazel Pillay (Hazel Pillay, General Manager: Pick n Pay Clothing), Julia Buchanan and Gavin Rajah. Image supplied

Kiav Mitoo, a 20-year-old graphic design student, is the latest creative to launch a limited edition collection under Pick n Pay Clothing’s Futurewear incubator programme.

The collection’s crop tops and oversized tees sport a vibrant graffiti vibe in bright summery hues. Perfect for Pick n Pay Clothing’s trendy, young crowd, as the value clothing retailer continues to captivate South African shoppers.

“Futurewear isn’t just about unveiling fresh, on-trend collections – it’s also a platform to empower local talent. We are embracing diversity in styles and techniques to cater to every shopper. Kiav’s line brings that street-chic edge, adding to our array of previous dressed-up collections,” says Hazel Pillay, general manager: Pick n Pay Clothing.

Image supplied

In the span of just one year, Mitoo has designed prints for two Futurewear designer collections and launched his own range, a feat that many students his age can only dream of achieving. His range is now in selected Pick n Pay Clothing stores and available online.

Eyeliner became popular after its discovery in King Tutankhamun’s tomb in the 1920s.


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