Johannesburg - Leading clothing retailer Edcon said it made its first profit since 2012 after last year’s successful exchange offer aimed at stabilising its balance sheet.
Edcon, which owns Edgars, CNA, Legit and Jet among others, said on Friday it had made a R2.9 billion profit in the December quarter after the holders of its e425 million (R7.45bn) of 2019 bonds agreed to an exchange that had a deleveraging effect of e298m. This it said translated into its annual net cash interest payments being reduced by R1bn.
Chief executive Bernie Brookes said the company had made a profit for the first time in many years.
“The last profit was in 2012 due to our indebtedness,” Brookes said.
Edcon, which was bought by US private equity firm Bain Capital Partners for R25bn in 2007, saw its net debt drop to R22.6bn from R27bn in the previous quarter.
Debt refinanced
The company said previously none of its debt obligations would mature for two years after reaching an agreement with all of its bank lenders to extend the maturity of more than R7.9bn of bank debt.
In addition, the group secured a senior refinancing facility of e123m, which was used to refinance the R1bn floating rate notes that are due on April 4 and the super senior liquidity facility in September.
However, it reported lower revenue as consumer confidence declined to a 14-year low.
Brookes also said it had lost market share to rivals, including Woolworths and Foschini.
The company was on a turn around journey after restructuring began in December.
“In the next 12 to 18 months we expect to gain market share through cost reduction, a differentiated customer service proposition, design-led private label offering, and driving sales.
“We are a business with an annual turnover of R27bn and we touch many people. This is a large ship to turn around. We expect in the new financial year we will have a leaner model from about April onwards,” Brookes said.
Brookes said the group was targeting R500m in savings in the next year, which would go towards trimming the headcount at its headquarters.
It also planned to improve its tendering process, cut advertising costs and reduce the number of security firms at its stores.
The company cut 1 500 jobs 12 months ago, and Brookes declined to give the number of job cuts planned this year.
Retailers have been feeling the pain of South Africa's gloomy economic prospects.
Massmart said on Thursday the prospect of a consumer spending revival was dim.
Brookes said the overall trading environment remained challenging during this quarter, mostly due to higher income tax, increased unemployment, rising interest rates and a sharp depreciation in the rand.
Edcon said revenue for the December quarter had declined by 1.5 percent to R9.13bn. Gross profit growth fell by 3 percent as a result of the decline in sales growth combined with increased input costs, largely as a result of the devaluation of the rand compared with prior comparative quarter.
Strategic plan
“The negative results were addressed in a strategic plan announced in December 2015 where we provided a roadmap to address the declining sales and profit of the group. This plan includes a leaner head office, providing our chain management team with the profit and loss responsibility and, importantly, accelerating customer-focused operations.”
The company said credit sales were affected by the tighter affordability rules and contributed 37.6 percent of total sales in the quarter from 41 percent previously.
Brookes, said the company was on the road to recovery.
“We are at long last in a better financial position following the exchange offer. The deleveraging of the business, takes our level of debt down. Our plan is gaining momentum both in cost cutting and customer centricity,” Brookes said.
BUSINESS REPORT