47 of 2023

Newsletter No 47/1 December 2023                              


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TFG unveils state-of-the-art omni-enabled distribution centre


TFG, South Africa’s leading speciality fashion and lifestyle retailer, launched the completed first phase of its new Riverfields omni-enabled distribution centre yesterday. With a significant 75,000m2 capacity, this cutting-edge facility will revolutionise TFG’s fulfilment costs, operating capacity and omni-channel capabilities.

Strategically positioned in Midrand, Gauteng, the Riverfields DC is a first step to consolidate 13 sub-scale distribution centres, enhancing efficiency and responsiveness. This enables TFG to adopt global fashion supply chain best practice by keeping inventory further back in the chain with a “pull model” to optimise stock management and boost gross margins.

TFG’s CEO, Anthony Thunström, said, “We are pleased to open and launch phase 1 of our Riverfields distribution centre, which is a key strategic investment for TFG and a game-changer for our business. This facility will not only enhance our operational efficiency and scalability, but also enable us to deliver a superior customer experience across all our channels. The launch of Riverfields is another milestone in delivering on our vision of creating remarkable omnichannel experiences for our customers.”

Riverfields will enable TFG to optimise its omni-channel fulfilment, by bringing online distribution and fulfilment in-house, as well as reducing in-store picking, eliminating the need for expensive outsourcing. The target is to process 70% of all e-commerce orders through the new DC, which will significantly reduce the fulfilment costs and improve the profitability of TFG’s online business. The new DC will also ensure faster and more reliable delivery for customers, better stock availability, and improved product quality.

“The Riverfields Distribution Centre is an example of TFG’s commitment to driving greater innovation and efficiency. With TFG’s continued strategic expansions plans, Riverfields ensures we are well-equipped to meet the evolving demands of our growing customer base,” said Thunström.

TFG plans to complete the ramp-up of throughput at Riverfields by the end of 2023 and expects to see the benefits of the new DC from the 2024 financial year.

Shein removes the gloss from SA retailers

By Chris Gilmour

An employee is shown at a Shein Holiday pop-up shop inside of Times Squares Forever 21 in New York City, US. Picture: David Dee Delgado / Reuters

Mr Price, TFG and the like will continue to endure unfair competition unless the government takes action to curb the importation of cheap online fashion retailers from Asia

A former darling of the JSE’s clothing retail sector, Mr Price, released its interim results last week. And while turnover rose sharply, even before the impact of acquisitions, bottom-line earnings slumped.

Mr Price is not unique in this regard; arch-rival TFG exhibited a similar situation recently, albeit for somewhat different reasons. The depressing aspect of Mr Price’s poor results is that they show just how cash-strapped SA consumers have become.

Back in the day, value players such as Mr Price would have experienced a reduction in earnings but nothing on this scale. And, of course, the situation is compounded by the recent emergence of extremely cheap Asian retailers such as Shein, which are undoubtedly eating Mr Price’s lunch.

Having said that, Mr Price CEO Mark Blair remains remarkably upbeat about the group’s prospects. Not only has Mr Price insulated itself from the worst aspects of load-shedding via 100% battery backup, but the rotational power cuts should decrease in frequency and intensity from 2024.

For the first nine months of 2023, the amount of load-shedding exceeded for all of 2022 — and by a considerable margin. Interest rates are at an historical high but should start to ease next year, offering some relief to hard-pressed consumers. And for Mr Price the disruption caused by the implementation of new enterprise resource planning software is now in the base and won’t be repeated.

For the six months to end-September 2023, group revenue rose 26.4% to R16.8bn. Operating profit fell 0.4% to R1.9bn, with the operating margin declining by 320 basis points to 11.5%.

Diluted headline earnings per share (HEPS) dropped 9.6% to 439.5c and a dividend of 283.5c a share was declared. The balance sheet is still very strong, with zero interest-bearing debt.

In a more “normal” operating environment, Mr Price would have demonstrated a much more robust, sustained set of financials. And therein lies the dilemma for potential investors, not just in the clothing retail sector generally though specifically in Mr Price.

Unless the government takes action to curb the importation of cheap online fashion retailers from the Far East such as Shein, Mr Price, TFG and others will continue to endure unfair competition. And besides, there are precious few signs that the SA economy is likely to break free of its low growth trap any time soon.

Like TFG, Mr Price has invested through the economic cycle, buying up retail assets at good prices. But unlike TFG, it has achieved this without resorting to increasing debt on the balance sheet.

Theoretically at least, it is well poised to benefit from an upturn in the economy and this probably goes a long way to explaining Mark Blair’s optimism.

Some years ago Blair also spoke of the ambition for Mr Price to become the most valuable retailer in Africa, at a time when it was the JSE’s biggest retailer by market capitalisation.

That ambition seems little more than a pipe dream now. With a market capitalisation of about R41bn, Mr Price is now marginally bigger than TFG (R38bn), though some way ahead of Truworths on R34bn.

However, it is markedly smaller than either Clicks or Woolworths, which are valued at about R70bn, and Shoprite is in different leagues at R152bn. It would Mr Price many years, if not decades, of spectacular earnings and dividend growth to get anywhere near that sort of market capitalisation.

At the current share price of R158.90, Mr Price is trading on a price:earnings ratio of 13.2. That compares with 12.6 for TFG and 9.5 for Truworths, indicating the market is still prepared to confer a slight premium on Mr Price, presumably because of its better long-term earnings track record.

Still, such a premium may prove temporary unless Mr Price gets back on the road to sustainable growth.  

LA Group acquires Boardriders brands

LA Group has acquired the licence to distribute the Boardriders brands from its global owner, Authentic Brands Group (ABG), according to a release. It said the deal would probably be finalised in the first quarter of next year.

The brands are Quiksilver, Billabong, Roxy, RVCA, DC Shoes, Element, and VonZipper, and LA Group’s licence covers South Africa and southern Africa, including Angola, Botswana, Kenya, Namibia, and Zambia.

LA Group will also take over 32 freestanding stores.
The brands and the stores were previously handled by an ABG subsidiary, New Pier Trading.
The release didn’t clarify whether LA Group was taking over New Pier Trading, the ABG subsidiary which has been distributing the surf brands.

It also made no mention of whether the surf brands would remain headquartered in Durban, and under the current management team.

The LA Group has recently moved and merged the Johannesburg head offices of its other apparel distribution subsidiaries, Skye Distribution and Polo SA.

They have both been moved to Wanderers Office Park in Rosebank. Their previous head offices are now warehouses.  S&V

Pepkor final results September 2023

Revenue for the year was 7.7% higher at R87.4 billion (2022: R81.2 billion) and gross profit grew 8.2% to R31 billion (2022: R28.7 billion). Operating profit dropped 74.5% to R2.7 billion (2022: R10.5 billion). Loss attributable to equity holders of the parent was reported at R1.3 billion (2022: profit of R6.1 billion). Furthermore, headline earnings per share from continuing operations lowered to 149.1 cents per share (2022: 163.3 cents per share).

The board declared a cash dividend of 48.07572 cents per ordinary share payable to shareholders on Monday, 22 January 2024.

Company outlook
The consumer and operating environment in South Africa continues to pose challenges. Substantial disruption in port operations is adversely affecting stock inflows following year-end.

Although sales performance exhibited fluctuations in October 2023, trading remains resilient and robust during periods when money is injected into the market, such as payment days for social grants, salaries and wages. The success of the first quarter of FY24 will hinge on the performance of festive and back-to-school trade.

In FY24, it is anticipated that product inflation will alleviate to mid-single-digit levels, supported by enhanced sourcing strategies and deflation in factory gate prices. This will benefit customer affordability and boost sales volumes. The group continues to implement specific cost reduction measures. Pepkor remains dedicated to fulfilling customer needs and making a positive difference in their lives.

Mr Price interim results September 2023

Revenue for the interim period shot up 26.4% to R16.8 billion (2022: R13.3 billion). Profit attributable to equity holders of the parent went down 10.3% to R1.2 billion (2022: R1.3 billion). In addition, headline earnings per share decreased by 9.3% to 449.9 cents per share (2022: 496 cents per share).

Notice is hereby given that an interim gross cash dividend of 283.5 cents per share was declared for the 26 weeks ended 30 September 2023, a 9.3% decrease against the prior year.

Company outlook
South African consumers are likely to remain constrained into 2024 as the recovery in employment has lagged economic activity and real wage growth has been negative. The recent improvements in consumer price inflation, fuel prices, currency exchange rates and unemployment will bring some respite to business and consumers. The interest rate cycle is anticipated to turn positive by mid-2024, which will alleviate consumer pressure. Electricity supply remains a risk to economic activity, however there is expectation that the loadshedding intensity moderates.

An increasing risk to business in South Africa is the instability of port operations. The company will continue to take the necessary steps to minimise this impact and management is satisfied that the group has adequate stock levels for the upcoming festive season.

The group’s fashion-differentiation, EDLP model and deep knowledge of the South African consumer has enabled it to withstand many historical economic cycles and periods of increased competition. Its core brands have recently been voted the most valuable apparel retailer in South Africa, the most shopped retailer, the coolest clothing store in SA and the most loved homeware retailer in SA by various independent sources. This external recognition, and the unwavering support of its 28 000 associates and suppliers, provides the group with confidence that the positive momentum experienced in Q2, can continue into H2 and beyond. Its acquisitions have been earnings accretive to date and there are several attractive growth opportunities available. This includes Mr Price Kids, which now has a total of 16 standalone stores which are exceeding expectations and has the potential to be a significant retail chain for the group.

Annual capital expenditure of R1.4 billion is anticipated and the group plans to open approximately 140 new stores during the remainder of FY2024, which will be the primary channel of capital allocation.

Mr Price – appointment of a director

Shareholders were advised that Refilwe Nkabinde has been appointed as an independent non-executive director of the Company and member of the Audit and Compliance Committee with effect from 1 December 2023.

Woolies – changes to board committees

With effect from 1 January 2024:

*Mr Lwazi Bam has been appointed as a member of the Treasury Committee;
*Mr Rob Collins has been appointed as a member of the Sustainability Committee;
*Ms Belinda Earl has been appointed as a member of the Nominations Committee; and
*Mr Clive Thomson has been appointed as a member of the Nominations and Remuneration and Talent Management Committees.

For all the hoopla made about Fashion Week, the average fashion show is only about 10 minutes long.


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