TFG (The Foschini Group) and Mr Price are two of South Africa’s largest and best-known clothing and lifestyle retailers and feature prominently in investment discussions.
Mr Price is a favourite among high-profile analysts and portfolio managers like Gary Booysen from Rand Swiss, Wayne McCurrie from FNB Wealth & Investments, and Graeme Franck from PSG Wealth.
TFG is equally popular, with Chris Gilmour, Graeme Körner from Körner Perspective, and Imtiaz Suliman from Sentio Capital saying it is a good investment.
With so much attention on these two South African clothing retailers, Daily Investor took a closer look at these companies.
TFG is headquartered in Cape Town and has a portfolio of 29 leading retail brands, with over 4,300 outlets in 26 countries.
It offers 18 retail brands, including clothing, footwear, jewellery, sportswear, mobile phones, technology products and home stores.
Mr Price has 1,702 retail stores, with 1,572 in South Africa and 130 in the rest of Africa.
Its retail brands include Mr Price, Mr Price Sport, Mr Price Home, Miladys, Power Fashion, Sheet Street, and YuppieChef.
TFG and Mr Price have been on the acquisition trail to grow their footprint and market share.
TFG acquired 382 commercially viable JET stores in South Africa from Edcon for R385 million in 2020. It was one of the best deals in history.
TFG’s 2022 year-end financials showed that JET generated EBIT (earnings before interest and taxes) of R512 million, 1.3 times its acquisition value in a single year.
In December 2021, it bought Quench, an on-demand shopping platform providing last-mile delivery services.
In March 2022, TFG announced that it would expand its @home segment by acquiring Tapestry Home Brands to introduce new products and customers to the group.
The market responded positively to the Tapestry acquisition, with the share price soaring from R119 to R149 in less than a month.
Last year, Mr Price acquired Yuppiechef to bolster its eCommerce segment and grow its presence in the high-end retail market.
TFG and Mr Price have similar offerings, which raises the question of how they performed over the last year.
The table below compares the turnover growth for the two firms’ main segments from Q1 2022 to Q1 2023.
It shows that TFG has delivered strong results for the first quarter, outperforming Mr Price.
TFG delivered an impressive performance throughout the group, with TFG Africa, Australia, and the UK delivering turnover growths of 11.2%, 15.7%, and 39.9%, respectively.
|TFG vs Mr Price|
|Turnover||TFG Africa||Mr Price|
|Clothing turnover growth||13.10%||8.00%|
|Homeware turnover growth||17.40%||1.60%|
|Total turnover||TFG Group||Mr Price|
|Total turnover growth||16.30%||7.00%|
Market Share battle
Mr Price’s vision is to be the most valuable retailer in Africa but to claim that crown, it will have to significantly increase its market share.
Daily Investor compared the revenue distribution between TFG and Mr Price – shown in the chart below – which revealed that TFG has been eating into Mr Price’s market share.
TFG increased its revenue share relative to Mr Price from 53% in 2005 to 61% in 2022.
In its 2022 year-end results, TFG said it significantly increased its capital expenditure to upgrade existing stores and create new outlets.
Their strategy seems to be implemented well in growing the business and gaining market share.
TFG has rapidly grown its market share but is not as profitable as Pr Price.
We broke down the two retailers’ profitability into gross, operating, and net profit margins, shown in the table below.
It revealed that Mr Price generated a much higher net profit margin than TFG for the 2022 year-end.
TFG generated a significantly higher gross profit margin than Mr Price, indicating that TFG had a lower cost of sales than Mr Price.
However, TFG’s operating profit margin is much lower than Mr Price’s. TFG, therefore, eroded its gross profits with high operating expenditures.
|Debt to equity ratio||0.82||0.62|
The last word
TFG has outperformed Mr Price in gaining market share and is well positioned to continue this momentum after a few good acquisitions.
However, TFG will need to manage its operating expenses carefully to carry over its impressive gross margin into a net margin.
Managing its operating expenses will also help TFG reduce its debt levels in line with Mr Price’s.
Like TFG, Mr Price has made a few prominent acquisitions, including Power Fashion, YuppieChef, and Studio88. They fit in well with its existing product offerings and will build its client base.
Mr Price, armed with low debt and high profitability levels, is well positioned to take the fight to TFG and regain some of the market share it lost in recent years.