Foschini Group to accelerate its Africa strategy

The continent's consumer-facing industries are expected to grow by $400bn by 2020‚ presenting a compelling investment case for retailers as home-market growth slows.

The group trades out of 116 stores outside of SA at present‚ in Namibia‚ Botswana‚ Zambia‚ Lesotho‚ Swaziland and Nigeria and has plans to open outlets in Ghana‚ Angola and Mozambique.

Other clothing companies like Truworths and Mr Price are also accelerating expansion into the continent.

The group on Thursday reported a 3.8% rise in diluted headline earnings per share rose to 411.2c for the half-year ended 30 September. The group's operating margin was 22.5%‚ down from 23.1% in the previous period.

High unemployment rates, slow income growth

High unemployment rates and slow income growth have curbed household expenditure‚ which is already curtailed by soaring utility costs and rising debt.

Recent trading updates from retailers have pointed to a marked deceleration in spending across sectors‚ and that the credit environment was likely to deteriorate further due to current levels of consumer indebtedness.

Doug Murray‚ CEO of Foschini Group said a feature of the past six months - which was marked by the difficult consumer credit cycle - was the growth of the group's cash sales which were up by 12.7% for the period.

"Cash sales account for about 40% of our total sales and we are very pleased to see cash customers continue to favour our stores‚" he said.

The group's debtors' book‚ which amounts to R5.5bn‚ increased by 5.7% since year end. Bad debt as a percentage of closing debtors' book increased to 11.4% from 10.5% at the year-end.

Enhanced credit risk measures

"Enhanced credit risk measures have been put in place‚" Foschini Group said.

The slowdown in unsecured lending‚ which has given retail sales a significant boost over the past three years‚ is expected to be one of the major contributors to the decline in spending.

Although there are indications that borrowing has slowed as lending criteria have been tightened‚ concern remains about the ability of consumers to repay loans and settle accounts.

The group's total retail sales grew 9% to R6.7bn with sales in the rest of Africa growing 25% in the six months to the end of September.

An interim dividend of 243c per share was declared‚ a 3% increase.

Looking ahead‚ the group expected that the difficult credit environment was unlikely to improve in the second half of the year due to the high level of consumer indebtedness and consequently enhanced credit risk management practices would continue to be implemented.

Increased focus

"Measures include scorecards being updated‚ late stage collections being in-sourced‚ increased focus on early stage collections and more frequent utilisation of external bureau information‚" Murray said.

He said that group sales for the first five weeks of the second half of the year had continued at similar levels to the first half.

"Given the weaker festive season performance last year‚ we expect a better second half performance but‚ as always‚ it is heavily dependent on festive season trading‚ which will largely determine the performance of the group for this period‚" he said.

At 3.08pm on the JSE‚ the company's shares were down 3.79% at R107.75.