TFG shares slump on load shedding blow

Fashion and homeware retailer The Foschini Group (TFG) estimates that elevated power cuts towards the end of 2022 reduced TFG Africa’s retail turnover by about R1 billion, following a spike in abnormal costs, lost trading hours and decreased footfall in its stores for the 2023 financial period.

News of the impact of load shedding on the group’s Africa operations, shared in Foschini’s latest trading update to investors for the year ended 31 March 2023, sent the retailer’s share price tumbling as much as 7.41% to R87.01 in midday trade on Monday, the lowest the stock has been this year. By lunch time it was down just over 4%.

According to the JSE-listed retailer, it saw the worst impact of the blackouts in January and February 2023, when the group believes it lost over R250 million in retail turnover for the TFG Africa business.

These losses sustained by TFG Africa are forecast to have an impact on group’s overall retail turnover performance for the year, with the 48 weeks ended 25 February 2023 – excluding the performance of the newly acquired Tapestry business – expected to show a “muted” 11.4% growth in retail turnover to R30.94 billion.

However, TFG says the business saw a slight recovery in the first two weeks of March 2023, with TFG Africa’s retail turnover – excluding the Tapestry business – increasing by 15.9% to R 1.2b billion, stronger than the R1.07 billion reported during the same period in 2021.

“The ongoing energy crisis and elevated levels of load shedding are having a profound impact on South Africa’s economy and society at large, making it difficult for businesses to trade, operate and plan at normal levels,” TFG stated.

“This is adding abnormal costs to the business, including the inability to pass on the impact of inflation and the costs of dealing with load shedding to the consumer in full.”

“Further, due to load shedding, retail footfall has declined in some regions and this, together with a change in consumer spending patterns, has impacted all South African retail.”

The group – which owns a diverse mix of brands including donna, Relay Jeans, Exact, The Fix, Sportscene, Coricraft and @home – says it lost approximately 345 000 trading hours for the 11 months ended February.

Trading hours lost in the first two months of 2023 reportedly surged by 9.4 times to 120 000, compared with the same period in 2022.

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Cost uptick

TFG previously reported that 70% of its turnover in South Africa is protected from the impacts of load shedding, due to the group’s investment in alternative power solutions.

To strengthen its independence from the failing national gird, TFG has earmarked a further R30 million to increase turnover protection to 80% in the next few months.

However, running independently from Eskom is proving costly for retailers and TFG is no different. To date, the group says it has spent R220 million in capital expenditure on back-up solutions, while incurring a further R65 million in “unbudgeted direct costs” going towards diesel, security and maintenance.

The retailer does however note that its efforts can only go so far. TFG says its backup solutions are able to protect the business only up to load shedding stage 4, which results in up to six hours without power a day. But stages 5 and 6 which can see the country without power for up to 10 hours a day render these solutions less effective.

“Load shedding in South Africa is expected to continue to have a significant impact on our business in FY2023 and FY2024. We continue to monitor the impact carefully but, given this prevailing uncertainty, it is difficult to predict with accuracy the extent of these impact.”

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