Share of the week: Foschini
Business Live - Jun 11th 2012, 08:36
South Africa's second-largest clothing retailer, the Foschini group, lifted retail turnover by 17% and headline earnings a share by 23.6% in the year to March.
The company is undergoing a vigorous expansion programme that will see it increase its store count in South Africa by about 122 and in Africa by 16 in the new financial year.
The company increased its inventory from R3.8-billion to R4.6-billion last year in anticipation of robust growth in 2012. It cut interest-bearing debt by almost half, from R1.2-billion to R722-million in the past year.
Syd Vianello, retail analyst at Nedbank Capital, said the company's changing debt profile was related to the ongoing unbundling of its RCS division. "The figures on the balance sheet for debt include both Foschini's and RCS's debt. RCS debt is shifting to long-term status to ensure it is properly funded relative to the profile of its lending book."
He said RCS would probably be listed by year-end, with Foschini lowering its stake to below consolidation levels. "That will remove at least R2.5-billion of debt from the Foschini balance sheet and leave the Foschini retail business on its own with very little debt at all."
Foschini's growth last year was a result of a recovering retail sector combined with market-share gains, said Vianello. "The consumer's appetite for shopping might be under pressure, but the fundamentals are still there."
Last week, Statistics SA reported that credit growth in the private sector was up 7.33% year on year in April. "Retail-sector shares have run hard over the past year, mostly due to foreign investment," said Vianello.
Bloomberg data shows foreign investors own about 70% of Truworths, SA's largest clothing retailer, from 67% a year ago, and more than 90% of Massmart. Almost 60% of shares in Mr Price and 54% of Woolworths are owned by foreign funds, increasing from 51% for both stocks in May last year.
"Foreign interest in JSE-listed retailers has been a three-year trend and this has driven valuation," said Theresa Heath, retail analyst at Stanlib.
Foschini's share price, at R75.55 this week, has risen 18.4% over the past year.
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