Edcon sales up; expansion on the cards

Edcon sales up; expansion on the cards

RETAILER NEWS

Business Live - Dec 1st 2011, 09:03

In an effort to accelerate growth, SA's biggest clothing retailer, Edcon will embark on an aggressive expansion plan, which will see trading space inch up 4% in the fiscal year ahead.  

The retailer on Wednesday reported an increase in sales of 7.3% to R5.4 billion arising from a 6.2% increase in comparable store sales during the second quarter from a year earlier.

"Despite concerns about negative macroeconomic indicators and international credit markets, retail sales in SA have been resilient," CEO Jürgen Schreiber said.

Unlike its competitors, Edcon has erred on the side of caution, adding only 0.8% of trading space or 16 stores over the period under review. The company has also shut underperforming stores.

"We closed 48 stores, primarily Discom - a lower margin business for us. We had some stores that were making losses so we just cleaned up the portfolio and converted some of the other Discom stores to Edgars Active and Legit stores, so it's a brand that we are getting out of," CFO Steve Binnie told I-Net Bridge/BusinessLIVE.

Edcon, who recently opened stores in Zambia, said it was looking for opportunities in other African countries, but would also expand locally, driving its traditional clothing brands Edgars and Jet.

Once known as the retail jewel of SA, Edcon was de-listed from the JSE in 2007 when its shareholders voted in favour of US group Bain Capital's R25 billion takeover bid - one of the biggest private equity deals to take place in SA.

But four years on, coupled with the economic slowdown, the multi-branded retailer is still repaying the debt - R23 billion at the end of the second quarter - incurred from the leveraged buyout.

"Most of it [the debt] is long dated and only starts maturing in 2014. We have short-term flexibility because we've got over R1 billion in cash on the balance sheet and we've got short-term working capital facilities of R3.1 billion, of which we've only utilised R600 million at the end of this quarter, so that gives us a lot of flexibility to grow further and expand our stores," Binnie said.

The company is seeing the benefits of tighter credit controls - annualised bad debt as a percentage of average debtors decreased to 8.9% from 11.8%.

"Our collections have been very strong throughout 2011. It does look like the customer has been deleveraging a little bit, it's one of the things that does contribute to us feeling reasonably positive about the outlook," Binnie said.

Edcon's Edgars department stores division, which includes Edgars, Boardmans and Red Square, increased retail sales by 6.9%, mainly due to strong growth from cellular products, cosmetics and footwear. CNA's retail sales improved by 11.7%.

"We are positive about retail conditions in SA and also encouraged by the outlook for the rest of the African economy," Schreiber said.