Johannesburg - Fashion retailer Foschini Group is looking to source R2bn through debt funding over the next three years for its fixed-term finance business, which saw a 76% rise in net bad debts to R158.2m for the six months to end-September as consumers struggle to keep up with debt repayments.
This is according to its CEO, Doug Murray, who says RCS Home Loans and RCS Personal Loans - both divisions of RCS Group, the financial services joint venture between Standard Bank and Foschini - saw net bad debt costs and provisions "increasing significantly in line with market trends".
"We would source the funding in tranches of R300m over the next three years in the domestic market, thereby diminishing our dependence on shareholders' funds," says Murray.
Before-tax profit at RCS Group, which manages debtors' books for 8 000 merchants including Queenspark and Massmart's Massdiscounters outlets, fell from R172m in for the six months to end-September 2007 to R97m for the same period in 2008.
Murray says the aggressive roll-out of credit by providers prior to the introduction of stricter lending criteria through the National Credit Act in mid-2007 translated into a rise in bad debts, but that this was being worked out of the system.
"Since then, credit providers have been more cautious, and the situation is already looking better in the second half [of the financial year]."
Flagship brand turnaround
Overall, the group reported a 1.3% decline in diluted earnings per share to 227.7c, while retail business turnover rose 2.9% to R3.8bn.
All of the group's brands, bar the flagship Foschini chain, reported a rise in turnover. With average product inflation of 6%, real growth was reported in home furnishings chain @home, menswear chain Markhams and the sports division, which comprises Totalsports, Sportscene and DueSouth.
Turnover at Foschini contracted by 4.2% to R1.4bn. Murray says the brand is in "season two of a four-season repositioning exercise", with management under the leadership of Abigail Bisogno working to get Foschini "back to being fashion-credible". Bisogno was appointed in July 2007.
One of the issues was the gap between management and relatively junior buying personnel. Says Murray: "We are now filling that gap with senior buyers, and moving people to buying portfolios that are more appropriate for them."
The group plans to make a stronger distinction between brands in the Foschini stable by introducing different pricing levels for certain ranges.
'Similar position'
Murray notes that South African consumers are under "tremendous pressure", but when the economy "turns for the better and rates come down" Foschini is well placed to take advantage of this.
"Business is going to be hard, but if we have a reasonable Christmas, we expect to be in a position where full-year earnings will be in line with those of the half year."
Shares in Foschini climbed 11.3% to close at 3 740c, as the results beat analysts' expectations. The JSE's all-share index closed 5.4% higher.
Directors declared an interim dividend of 118c/share.
- Fin24.com