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Click here to view Edcon's Annual Results 2011 PDF
Click here to view Edcon's Annual Results 2011 PDF

Credit-shy Edcon posts solid results


Business Report - Jun 7th 2011, 10:30

Edcon, the owner of Edgars, Jet and CNA, will continue to be conservative in its credit granting policy, unlike competitors who have become, in a low interest rate environment, more aggressive in pushing credit. 

Edcon chief financial officer Steve Binnie said yesterday: “We will continue to be prudent regarding credit sales. Given that we have more gearing, we need to be more conservative.”

As a result credit sales as a percentage of total sales have dropped over the past few years.

In the 52 weeks to April 2, credit sales provided 49 percent of total sales, down from 50 percent the year before. This compared with The Foschini Group, where credit sales accounted for 61.5 percent of sales in the 12 months to March.

At Edcon, operating profit from credit and financial services increased by 26.8 percent. This was primarily due to initiatives, which began in 2009, to reduce the availability of credit to higher risk customers, while improving collection activities.

The annualised bad debt as a percentage of average debt was 10.9 percent, down from 12.9 percent the year before.

Edcon is the largest retailer in its in category in South Africa with 1 181 stores under 13 retail brands. It is also the largest provider of credit in southern Africa by the number of customers, with 3.7 million customer credit accounts. In 2009 the company had 4.3 million active accounts.

Chris Gilmour, an equity analyst at Absa Investments, said yesterday that Edcon had always had a conservative credit granting policy and had never chased short-term business.

Commenting on the retail environment, Gilmour said given the low interest rates, this was the time for retailers to increase credit sales. “Normally in a low interest rate environment we would see credit retailers surging. But things have changed with consumers still constrained due to high levels of debt and the National Credit Act, which limits credit.”

But constraints applied by the National Credit Act meant that the credit cycle would be extended and consumers would be able to spend for longer.

Edcon reported that retail sales for the year to April 2 rose 6.1 percent to R22.7 billion and same-store sales rose 5.3 percent. The group experienced deflation of 1 percent.

It reported a net loss of R1.7bn after finance costs and fair value movement on notes and derivatives. But adjusted earnings before interest, tax, depreciation and amortisation rose 8.1 percent to R3.2bn.

Gilmour said the performance was an “excellent” result in an environment where consumers were under pressure.

The improved performance was attributed to a focus on merchandising, debtors book management, maintaining a conservative stance on credit activities and tight control over store operating expenses and working capital.

The department store division, including Edgars and Boardmans, increased retail sales by 7.1 percent. CNA’s retail sales grew 3.9 percent. The discount division, including Jet, Legit and Discom, grew retail sales by 5.3 percent.

Jurgen Schreiber, who was appointed Edcon’s chief executive in April, said the performance was underpinned by improved connections with targeted consumer segments, but there was work to be done. 

Read more about: retailers | retailer | jet | financials | edgars | edcon | earnings | cna | analysis

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