Top South African fashion retailer closing stores

South African fashion retailer TFG said on Friday it will step up cost cuts, slow store expansion, reduce capital expenditure and close underperforming stores and brands after reporting a 33.5% drop in full-year profit.

The group, which also operates in the UK and Australia, said peak-season sales were significantly weaker than planned, leaving excess stock, while trading in its international businesses deteriorated sharply in the second half.

It cited constrained consumer spending, softer UK department store demand and disruption from a cyber incident affecting a key online concession partner.

Gross margin fell 120 basis points to 48.2% as inventory was cleared, while operating expenses rose 10.7%, outpacing sales growth and weighing on profitability.

Headline earnings per share for the year ended March 31 fell to 675.4 South African cents, and operating profit slumped 36% to 3.9 billion rand ($237.57 million), also reflecting non-cash impairments on the Phase Eight brand in the UK and Tarocash and yd. in Australia.

Revenue rose 7.2%, with retail turnover up 7.1% at 62.4 billion rand.

CEO Anthony Thunstrom told investors that TFG’s recent acquisition-driven expansion had increased complexity and diluted returns in a weak market.

“There is a need for us to simplify our structures and structurally reduce our cost of doing business,” he added.

TFG has identified about 300 underperforming or loss-making stores and plans to close more than 100 over the year ahead, Thunstrom said.

As it slows down store expansion and reduces store capital expenditure, TFG will leverage its Bash online platform and fulfilment network to drive capital-light growth in South Africa.

New Zealand operations are also under review.

TFG shares opened 5% weaker as the market reacted to the poor results, but reversed losses to trade 4.53% stronger by 1439 GMT on cost-cutting measures.

Cost-saving measures intensified in the second half, including cutting 300 million rand of planned spending in Africa and reducing head office and store costs in Australia and the UK.

Excess inventory has substantially cleared, with group inventory up just 1.7% at year’s end. Capital expenditure was pulled back by more than 600 million rand, lending tightened, and cash flow prioritised, Thunstrom said.