Top South African Fashion Retailer TFG to Close Over 100 Stores After 33.5% Profit Plunge

South African fashion retailer TFG (TFG) announced on Friday that it will accelerate cost-cutting measures, slow store expansion, reduce capital expenditure, and close underperforming stores and brands after reporting a sharp 33.5% drop in full-year profit.

The group, which also operates in the United Kingdom and Australia, said peak-season sales were significantly weaker than planned, leaving the company with excess stock. Trading in its international businesses deteriorated sharply in the second half of the year.

TFG cited constrained consumer spending, softer UK department store demand, and disruption from a cyber incident affecting a key online concession partner as key factors behind the weak performance.

Financial Results

Headline earnings per share for the year ended 31 March fell to 675.4 South African cents, while operating profit slumped 36% to R3.9 billion ($237.57 million). The profit decline also reflected non-cash impairments on the Phase Eight brand in the UK and the Tarocash and yd. brands in Australia.

Gross margin fell 120 basis points to 48.2% as inventory was cleared at discounted prices. Operating expenses rose 10.7%, outpacing sales growth and weighing on profitability. Revenue rose 7.2%, with retail turnover up 7.1% to R62.4 billion.

Store Closures and Restructuring

CEO Anthony Thunstrom told investors that TFG's recent acquisition-driven expansion had increased complexity and diluted returns in a weak market. "There is a need for us to simplify our structures and structurally reduce our cost of doing business," he added.

TFG has identified approximately 300 underperforming or loss-making stores and plans to close more than 100 over the year ahead. As the company slows store expansion and reduces store-related capital expenditure, it will leverage its Bash online platform and fulfilment network to drive capital-light growth in South Africa. The company's New Zealand operations are also under review.

Cost-Cutting Measures

Cost-saving measures were intensified in the second half, including cutting R300 million of planned spending in Africa and reducing head office and store costs in Australia and the UK. Capital expenditure was pulled back by more than R600 million, lending was tightened, and cash flow was prioritised.

Excess inventory has substantially cleared, with group inventory rising only 1.7% at year's end.

Market Reaction

TFG shares opened 5% weaker as the market reacted to the poor results, but reversed losses to trade 4.53% higher by mid-afternoon, as investors responded positively to the cost-cutting measures.

Market Sentiment: 

The sentiment is cautiously optimistic, reflecting market recognition that management is taking decisive action to address structural issues. The 33.5% profit drop and 36% operating profit slump are undeniably poor, but the share price reversal from -5% to +4.5% suggests investors believe the worst may be priced in and that the cost-cutting plan is credible. The decision to close more than 100 underperforming stores addresses the complexity and diluted returns from TFG's acquisition-driven expansion. The shift toward capital-light growth via the Bash online platform is strategically sound, reducing exposure to expensive physical retail while leveraging existing fulfilment infrastructure. The clearance of excess inventory (gross margin down 120 bps) was painful but necessary, and the modest 1.7% year-end inventory growth suggests the problem is largely resolved. The R600 million capex pullback and tightened lending demonstrate disciplined capital allocation. The review of New Zealand operations adds further potential for portfolio pruning. Rising gasoline prices and inflation remain headwinds for consumer-facing retailers, as constrained household spending directly impacts TFG's core market. However, the company's aggressive response — simplifying structures, reducing costs, closing stores — positions it to weather the weak environment better than peers that remain overexpanded. For investors, the key question is whether the cost savings and store closures will be sufficient to restore margins to historical levels. The market's initial selloff, followed by recovery, suggests a "show me" stance. The execution of the announced plan will determine whether the stock sustains its gains. TFG is taking the right steps, but the consumer environment remains challenging, and the international businesses (UK, Australia) may require further restructuring. The next two quarters will be critical to demonstrate that profitability is stabilising.

Disclaimer:
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