Edcon fights to stay afloat as sales slowComment on this story
THE country’s biggest clothing retailer was still battling with debt, operational costs and credit-starved consumers, analysts said yesterday.
Edcon owns the Edgars, Jet, Jet Mart and CNA chains, with over 1 400 stores across Africa.
Analysts agreed yesterday Edcon was restructuring and trying to manage costs in order to keep the company afloat.
For the third quarter of this financial year, its retail sales grew just 3.3 percent to R8.8 billion, with its earnings before interest, tax, depreciation, and amortisation down 6.5 percent to R1.2bn. Gross profit declined by 1 percent to R3.1bn and the gross profit margin slid by 160 basis points.
Edcon dismissed notions that it was planning to list on the JSE or that Bain Capital planned to sell the company.
Edcon chief executive Jurgen Schreiber laughed off the question of listing, saying it kept on coming up.
“Our entire focus of the company is one thing and one thing only, improving the performance of the group and a clear focus on improving our credit sales and optimising our costs on the other side.”
Although Schreiber was happy with Edcon’s 14.2 percent cash sales growth, he was concerned about the 6.8 percent decline in credit sales.
“We have had great cash sales, best in the market and it really shows that we are getting better in our product, which is a positive thing. The challenge is not having enough new credit accounts coming into our system. This is because our customers do not have high enough limits,” he said.
He said this was due to Absa implementing a stricter policy. Absa bought Edcon’s debtors’ book for R10 billion in 2012.
Daniel Isaacs, an analyst at 36One Asset Management, said Edcon’s 3.8 percent revenue growth fell far short of its competitors. “Getting growth of 3.3 percent on sales when you have currency depreciation increasing your imported cost of goods and wages, and rental escalation growing 6 percent to 8 percent, it will definitely have an adverse effect on profits,” he said.
Isaacs said despite the fact that all other retailers were under pressure, Edcon’s retail sales growth number was still the lowest of its peers.
On a listing of Edcon, Isaacs said Bain had a window of opportunity about 18 months ago, considering the market mood at the time. Now the depressed growth and consumer outlook was likely to dampen any possibility of a listing.
As part of its restructuring, Edcon would embark on job cuts, but Schreiber said the group had not released any figure on how many people would lose their jobs.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said the company was highly geared, which was causing frustration. “Unfortunately the company might have to take some steps to keep the boat floating otherwise it might go under and you lose everything,” he said.
“You are sometimes forced to take difficult decisions,” he said, adding that Edcon was definitely losing market share.