For a time-tested fashion retailer that in December notched up the 100th anniversary of the opening of the first Foschini store in Joburg’s Pritchard Street – and which has since survived two World Wars, apartheid and Covid – the severe 12.8% tumble in TFG’s share price on Monday was an earthquake.
Yet Anthony Thunström, the CEO of the sprawling company which operates 4,922 outlets in 21 countries under brands such as Foschini, @home, Coricraft, Fabiani and Jet, must have had an inkling of what was to come when, minutes after the JSE closed on Friday, TFG snuck out a horror trading update. There, it warned of a headline earnings drop of between 30% and 40% – a far sight worse than the fall of “at least 20%” it warned of in March.
Weekend digestion didn’t help either: when the JSE opened again, TFG’s stock got panelled 15% at one point, before recovering some dignity later in the day. Aside from Covid, this pushed TFG’s stock back to levels last seen in February 2010, before South Africa hosted the Soccer World Cup.
Analysts were withering. Nedbank CIB immediately cut its expected target price for TFG, citing “poor earnings momentum” in its newest research report; RMB Morgan Stanley’s Warwick Bam described TFG’s guidance as “getting incrementally worse”; and Citi, which has recommended investors sell TFG, described this result as worse than expected and a clear “negative” for the retailer.
One analyst, who asked not to be named, says investors are evidently unhappy with the disconnect between Thunström’s perpetually peppy outlook on TFG’s prospects at investor presentations, and the glum figures ultimately produced by the company.
“In recent months, TFG had a capital markets day, and delivered [other] presentations – and gave no-one any indication that this sort of trouble was looming. They are all upbeat when they speak to investors, who then end up being surprised to the downside,” he says.
Yet, this new profit warning hinted at a potentially bigger problem at the company.
After all, how is it that a company that still managed to produce 7.1% sales growth overall – far better than many of its South African rivals like Truworths – still saw such a clattering collapse in headline earnings?
While it is true that the company did take a R750m write-down in the value of its UK business Phase Eight and its Australian businesses Tarocash and yd, this (seriously bruising) impact would be excluded from headline earnings. And even when you strip out the sales from its new UK purchase White Stuff, sales would still have increased 2.8%.
Paul Steegers, a veteran analyst at Nedbank CIB, describes this as “slightly confusing” to see where the real weakness is coming from.
“What this suggests is that there is some serious weakness in the underlying trading somewhere – either with costs rising substantially, margins being compressed heavily in some areas, or maybe problems elsewhere in the business that we don’t know about yet,” Steegers tells Currency.
In the last quarter of 2025, for instance, TFG’s South Africa business, which makes the bulk of the money, produced a phenomenal 7.5% bounce in sales – the sort of numbers that would have suggested a rising tide, rather than the opposite.
As Steegers puts it: “You have a company like Truworths, which is a rival to TFG, which shows no sales growth, yet its earnings are flat. Yet here, TFG is showing serious growth in its biggest market, and yet its headline earnings are falling by a huge amount. It just doesn’t seem to be able to translate these market share gains into operating leverage.”
The bad debt factor
There are a number of possible answers for what is ailing TFG.
One prominent theory is that problems may be building in its debtors’ book. TFG, by September last year, had a sizeable R9bn debtors’ book. But it has recently been talking big about expanding its e-commerce platform Bash beyond simply online shopping into a broader financial services proposition. Consumers can now get “TFG personal loans” through Bash, for instance.
In its research note, Nedbank CIB flags this possibility, pointing out that TFG’s head of credit Jane Fisher is taking early retirement, which “may point to issues in the credit books and could also partly explain the material HEPS decline”.
A separate red flag is that TFG has a sizeable chunk of debt of its own. By September, it had net debt of R10.1bn – sharply higher than the R7.6bn of a year earlier – as it needed extra cash to finance the R1bn purchase of White Stuff in the UK, buy back its shares, and finance higher working capital.
But if this presents any strain, there was no sign of this in its trading statement on Friday. There, TFG insisted it “maintains a sound balance sheet position, supported by committed banking facilities and prudent working capital management”.
Evan Walker, a veteran asset manager at 36One Asset Management, says it’s hard to figure out what lies behind the steep fall in headline earnings, given the solid sales growth. He suspects what you’ll find is an erosion of TFG’s profit margins, alongside rising bad debts in its customer base.
“First, the market has been exceptionally tough, so for them to produce top-line growth, they probably did this by heavy discounting or promotions, which means the gross margin will have dropped. Then, consumers are under severe pressure too and TFG has a sizeable debtors’ book, so they may be facing higher bad debts. What TFG might have done is set aside further provisions to cover these bad debts,” he says.
TFG, like all retailers, is struggling to compete with an influx of competition from China, in the form of online stores Shein and Temu.
In September last year, Thunström’s company pointed out that South Africans’ average transaction amount on Shein is about R1,000 – considerably more than the average R600 basket purchased through TFG.
Walker adds that aside from the competition at home, it doesn’t help when the overseas businesses that TFG has bought, in the UK and Australia, performed awfully. The UK arm, for example, produced exactly zero growth, while sales in Australia fell 1.5% last year.
“This is far worse than anyone expected. Some people had been pricing in more than 10% growth in those jurisdictions, so such bad offshore performance is a big swing factor,” he says.
Presumably, the true reason for TFG’s slide will become clear when the results are released on June 5.
But investors, unsure at this point what lies behind the dire trading update, aren’t waiting around to find out. Many of them, evidently, are reading this as something more than simply weakness in the wider retail market, and an indication of a malfunction in TFG’s engine room.
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Top image: Gallo Images/OJ Koloti.
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