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Foschini Plans for Expansion Outside Slowing South Africa

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Aug. 21 (Bloomberg) -- Foschini Group Ltd., South Africa’s worst performing clothing retailer this year, said it plans to open 21 new stores in the rest of the continent by March as consumers in Africa’s largest economy struggle to repay debt.

The Cape Town-based company, which owns the Fabiani and Charles & Keith fashion brands in South Africa, joins retailers such as Carrefour SA, Shoprite Holdings Ltd., Wal-Mart Stores Inc.’s Massmart and Truworths International Ltd. expanding in Africa with a middle class of 300 million people and economy set to grow three times the pace of the U.S. next year. South Africa’s central bank forecast an expansion of 2 percent for this year, the slowest since the 2009 recession.

Foschini plans to open five or six new stores in Zambia and four in Ghana, Chief Financial Officer Ronnie Stein said in an interview yesterday. The retailer will open 42 new stores in the rest of the continent in fiscal 2015 fiscal and 38 in 2016, he said. It also plans to add to its two recently opened stores in Nigeria as more shopping centers are built in the nation of more than 160 million people.

“That will take us to 205 stores by the end of the 2016 year when our turnover from the rest of Africa will be 1 billion rand ($98 million),” Stein said by phone from Cape Town. “We always start with two stores in a country. Once we’re happy with the environment, the logistics, the legal side, the tax side, the staffing side, then we roll out.”

South African retail sales rose at the slowest pace in nine months in June as rising joblessness weighed on spending. The number of South Africans with impaired credit records rose by 189,000 to 9.53 million in the first quarter, the National Credit Regulator said in June. About 40 percent of Foschini’s sales in fiscal 2013 were done with cash, while the balance was done on credit using the retailer’s store cards, it said May 30.

‘Over-Traded’

Retailers “all recognize the need to expand outside of South Africa, because South Africa is becoming increasingly competitive,” Roger Tejwani, a retail analyst at NOAH Capital Markets who has a hold recommendation on Foschini, said by phone from Cape Town. “It is becoming over-traded.”

The stock has lost 29 percent this year, compared with an 18 percent decline for the 11-member FTSE/JSE Africa General Retailers Index.

Foschini’s sales will probably grow by 10 percent for fiscal 2014, Stein said. That compares with a median estimate of 14.28 billion rand of eight analysts in a Bloomberg survey, representing growth of 10.7 percent. Trading conditions in the first three months through June were “tough” whereas July was “pretty good,” he said.

Rand Swings

Fluctuations in the rand may impact price increases on Foschini’s merchandise, Stein said. The currency has lost 17 percent this year, the worst performer among 24 major emerging-market currencies tracked by Bloomberg. It weakened 0.5 percent to 10.2076 per dollar as of 3 p.m. in Johannesburg.

Foschini’s internal product inflation for the fiscal year through March was 5 percent. That compares with a 6.3 percent increase in consumer price inflation in July, according to South Africa’s statistical agency.

“If the rand remains at the 10-ish level, the inflation for summer would likely be in the region of 7 percent, which is less than the devaluation in the rand,” Stein said.

The stock fell 1.2 percent to 100.51 rand, giving the company a market value of 22.6 billion rand. Truworths declined less than 0.1 percent to 83.75 rand, paring its loss this year to 23 percent.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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