JOHANNESBURG - Despite Edcon’s total retail sales tanking 7.8 percent in the quarter to June to R5.5billion as consumer disposable income remained depressed, South Africa’s struggling clothing retail giant started to show some green shoots of growth due to its turnaround strategy.
For the three months to June, Edcon increased its pro forma adjusted Ebidta, earnings before interest, taxes, depreciation and amortization, by 12.7 percent from R314million to R354m, which made it the group’s best period since the first quarter of fiscal 2016, the company said on Friday.
Edcon’s chief executive, Bernie Brookes, said: “Our strategic repositioning and transformation process has started indicating the green shoots of change.
“These results demonstrate the initial indicators of our turnaround plan.
“Edgars and Jet delivered better customer service scores, an improvement in retail sales performance and there was excellent cost containment throughout Edcon.”
Edcon, whose brands include Jet, Edgars and Boardmans, blamed the weak sales on subdued consumer demand, fierce price competition and a warm winter season marginally offset by a shift in Easter from the fourth quarter 2017 to the first quarter 2018.
Edcon has lost market share in recent years in the clothing division to local retailers such as Mr Price and international newcomers including H&M and Cotton On.
Brookes said the domestic business environment had deteriorated during the quarter with lower volume growths combined with input cost inflation, which impacted on the sector’s profitability.
“Underlying consumer demand remains weak on the back of tight credit conditions, low growth in consumer disposable income, political uncertainty and restrictive fiscal policy,” the company said.
New management
It is under new management after private equity firm Bain Capital agreed to a debt for equity swap deal valued at $1.5bn last year.
The retailer said on Friday that despite the negative macro-economic influences, like-for-like retail sales were 1.4percent lower with positive retail sales growth in certain merchandise categories, including ladies wear and homeware in both Edgars and Jet.
The company said it was in a better space after implementing a turnaround plan last year, including a merchandise strategy that entailed rationalising suppliers and introducing new inventory.
Edcon’s total revenues decreased by R394m, or 6.1percent, to R6.04bn in the first quarter. It also recognised a loss after tax of R697m.
Ron Kiplin, a portfolio manager at Johannesburg-based Cratos Wealth, said on Friday that the results were the latest indication that Edcon was in a turnaround mode.
“They (Edcon) have sold a lot of dead stock and turned it into cash,” he said.
Kiplin also said the company was starting to focus on its own brands, a move which would generate cash.
“Own brands yield higher margins than international brands,” he said, referring to a move by the company to cut the number of its international brands and the closure of stores.
In terms of the lower sales, Kiplin said this was worse than peers like Truworths.
However, he said, it was no good having retail sales on the up when you were losing money, citing the cash inflow of R525m versus the net outflow of R374m in the first quarter of 2017.
Edcon, South Africa’s biggest retailer, made changes as its 100-year-old competitor, Stuttafords, closed shop this month.
“People are not interested in Stuttafords because of the legacy model and Edcon has recognised that this business model has had its day and has repositioned itself to become appropriate to current circumstances.
Early days yet , with more hard work to be done, however, it looks to be on the right track.
Earlier this year, the National Consumer Tribunal found Edcon had unlawfully charged club fees to its credit customers. It is required to refund consumers.