Foschini-owner makes big UK purchase

The Foschini Group (TFG) has announced its acquisition of leading UK-based fashion and lifestyle retailer White Stuff.

On Thursday, 25 October, TFG announced that it made the acquisition trough its London subsidiary, TFG London. 

This subsidiary has a portfolio of 35 leading retail brands in 23 countries. The White Stuff brand is, therefore, joining a significant stable of other UK-based fashion brands already owned by TFG, such as Hobbs, Whistles and Phase Eight.

Founded in 1985, White Stuff specialises in unique, thoughtfully designed clothing and accessories for women, men and children. 

White Stuff has 113 stores and 46 concessions in the UK – within John Lewis, Marks & Spencer and other quality independent retailers. 

The business also operates 6 stores and 25 concessions across Europe. White Stuff retails online internationally and has 606 wholesale stockists – 178 in the UK and Ireland and 428 internationally. Online sales currently contribute 43% of total sales.

 TFG CEO Anthony Thunström said the acquisition marks a significant milestone in TFG London’s medium-term strategy to achieve critical mass and add new brands to the group.

It initially acquired Phase Eight in 2015 and later acquired Whistles and Hobbs. 

He said TFG London will now be in a position to create a unified retail platform in the United Kingdom, which largely mirrors our platform structure in Africa and Australia.

“This acquisition represents a meaningful build-out of our London business, adding close to 50% to TFG London’s turnover,” he said. 

“White Stuff is a prominent high brand-equity business in the UK and has the potential for strong, sustained growth.” 

“We are excited about its prospects and very pleased to be retaining the experienced senior management team led by CEO Jo Jenkins.”

TFG London CEO Justin Hampshire said the company is thrilled to welcome the White Stuff team into the TFG London family. 

“We have long admired the White Stuff brand, which is synonymous with unique detail and exceptional quality,” he said. 

“The addition of White Stuff to TFG London diversifies and strengthens our existing womenswear portfolio, adding the first lifestyle brand while also bringing a well-established menswear offer and its loyal and resilient customer base.”

White Stuff CEO Jo Jenkins said TFG London is the ideal owner for the business because of the value of White Stuff’s brand and the wealth of premium retail experience in the business. 

“This is a very exciting moment for White Stuff and represents the natural next step for our business. It builds on the hard work and success the brand has achieved in recent years,” he said.

White Stuff has a solid track record of financial performance. In the financial year ending 30 April 2024, the business achieved revenue of £154.8m and EBITDA of £8.6m. 

Over 85% of revenue was generated from the store estate and online, with the remainder from its international and wholesale operations.

Good value

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.

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).

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.