Rest of Africa, discount chains buoy Edcon

201113 Edgars store in Sandton Johannesburg.Edcon released their results today.photo by Simphiwe Mbokazi 453

201113 Edgars store in Sandton Johannesburg.Edcon released their results today.photo by Simphiwe Mbokazi 453

Published Nov 22, 2013

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Johannesburg - Fashion retailer Edcon is confident that its operations elsewhere in Africa will continue to produce good returns after the region recorded an increase of 25.5 percent in second-quarter retail sales.

Edcon, which owns chains including Edgars, Legit, Jet and CNA, has stores in Botswana, Namibia, Swaziland, Lesotho, Mozambique and Zambia.

In the three months to September 28, sales elsewhere in Africa contributed 11.4 percent of group retail sales with the number of stores increasing to 154 from 115 a year earlier, Edcon said yesterday. It attributed the gains to the increased number of stores as well as improved merchandise.

Chief executive Jürgen Schreiber said Edcon planned to open a store in Nigeria next year, undaunted by the exit of rival Woolworths from the country this month. He said Edcon’s strategy in countries outside South Africa was to first introduce its discount stores, which include Jet and Jet Mart.

“We start off with our discount division stores and then introduce our Edgars brands at a later stage.”

He noted that Edgars stores in Zambia and Namibia were performing well.

Edcon’s improved performance in the second quarter of its 2014 financial year was helped by its discount division, which increased sales and profitability, the company said.

Sales at the discount division rose 10.3 percent year on year, recovering from a 0.1 percent fall a year earlier. Same-store sales were up 5.4 percent.

Schreiber said this was due to a strong performance in ladieswear and menswear and also after Edcon implemented refurbishments and other efficiencies two years ago.

The Edgars division grew sales by 3.4 percent with same-store sales up just 1.6 percent due to disruptions from store refurbishments. The group said it would have 70 of its 72 targeted Edgars stores refurbished before Christmas.

Edcon’s total retail sales grew 5.9 percent year on year to R6 billion. Gross profit increased by 6.2 percent to R2.2bn. Net financing costs decreased by 26.7 percent to R654 million.

Cash sales increased by 17.4 percent while credit sales declined by 4.3 percent.

Schreiber said this was due to Edcon selling its credit book to Absa, which had since tightened its credit granting criteria. “The amount of credit applications we get are unbelievably high, but it is the acceptance rate that is low.”

He added, however, that an increase in cash sales was a good sign because it gave a clear indication of where shoppers wanted to shop.

Analyst Jean Pierre Verster, at 36One Asset Management said Edcon was still experiencing some pressure on its top line. However, retail sales elsewhere in Africa were making up for that.

He said the cash sales growth implied that credit sales were very weak.

“This is an example of natural tension between a retailer and a bank. This happens because a retailer prefers to be lenient in granting credit to facilitate the sale of goods while the financial institution is more conservative in granting credit” to rein in bad debt. - Business Report

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