Big South African retailer eyes further UK expansion

The Foschini Group (TFG) may add another UK retailer to its stable in a deal that could be worth R1.14 billion. This is according to Sky News, which reported that TFG is in talks to buy UK retail chain White Stuff.

White Stuff is a British fashion and lifestyle brand that sells women’s, men’s and children’s clothing, accessories, homeware and gifts in over 120 shops in the United Kingdom.

George Treves and Sean Thomas founded White Stuff in 1985, starting under the name “Boys from the White Stuff,” in which “white stuff” refers to snow.

Today, the business has over 100 stores and employs more than 1,200 people.

In February this year, Sky News reported that the founders were exploiting the potential sale of its business, which is estimated to be worth around £50 million (R1.14 billion).

In South Africa, TFG owns several well-known brands, including American Swiss, @home, Coricraft, Dial•a•Bed, Jet, Markham, and Totalports. 

TFG entered the UK market in 2015, and its potential acquisition of White Stuff would form part of its current British stable, which falls under its subsidiary TFG London.

The TFG London segment operates principally in the United Kingdom but also has a presence in 14 countries globally.

In its 2024 financial year, TFG London contributed 13% of group turnover. It currently has several brands in its stable, including Inside Story, Hobbs, Phase Eight, Whistles, and Studio8.

In its latest results, TFG said it plans to expand its operations in the UK and Australia by repositioning in high-margin channels, optimising stores, expanding selected stores, and enhancing distribution capacity once consumer confidence in these markets improves.

Daily Investor analyst Drikus Greyling examined the potential sale and White Stuff’s valuation.

In its most recent results, White Stuff’s sales increased by 2.4% from £147.1 million to £150.7 million. 

The retailer’s profitability improved significantly from a loss before tax of £362 million to a profit before tax of £4.66 million. This was due to the company’s ability to improve both its gross profit margins and its operating profit margins.

However, the greatest contributor to the profit before tax margin was the significant reduction in interest expense due to White Stuff paying off a large portion of its debt.

This caused the company to generate a net profit of £3.2 million in 2024 compared to the previous period’s £0.3 million.

While profitability improved relative to the prior period, the retailer reported a relatively weak absolute profit margin of only 2.1%.

However, a significant attraction to acquiring White Stuff is its very low debt levels. It currently has a net debt of only £521,000, which translates to a net debt to EBITDA of 0.07, meaning the company is almost entirely financed by equity.

At a purchase price of £50 million, TFG would buy the company at a P/E ratio of 15.8 times earnings and a P/S ratio of 0.33 times sales. This is very much in line with TFG’s valuation of 15.9 times earnings and 0.9 times sales.

However, one concern is White Stuff’s slow-down in sales growth. In the 2023 financial year, White Stuff grew its sales by over 13%, which is significantly higher than its current sales growth of 2.4%

In comparison, TFG grew its sales by just below 9% in the past financial year.

However, TFG does not appear to be overpaying for the company – it would pay a similar price for White Stuff as buying its own shares.

TFG has had success in entering the multinational retail space in Australia, significantly improving its profits from that region.

With White Stuff’s low levels of debt and potential synergies with TFG, the company has the potential to deliver strong results for TFG.

Daily Investor reached out to TFG for comment on its potential deal but did not receive a response by the time of publication.