Edcon Returns to Profit as Bain Cedes Control of RetailerBy and
Owner of Edgars, Jet cleared stock ahead of busiest quarter
Sales declined 6.8% due to slump in purchases using credit
Edcon Holdings Ltd. returned to profit in the second quarter after debt repayment costs eased following the exit of U.S. private equity firm Bain Capital, while South Africa’s biggest clothing retailer cleared unwanted stock to boost sales during the busy festive period.
Net income for the three months through September was 163 million rand ($11.5 million), the Johannesburg-based owner of the Edgars and Jet chains said in an e-mailed statement on Tuesday. That compares with a 2.1 billion rand loss a year earlier. Cash sales increased 0.8 percent, although a slump in purchases on credit meant total revenue declined 6.8 percent.
“Within each of the Edgars, Jet and Specialty divisions, there is significant momentum underway of internal change,” Chief Executive Officer Bernie Brookes said. “While we still have some way to go, progress is pleasing.”
Under Brookes, Edcon has embarked on a four-year plan to turn around the business after Bain’s exit in September eased the debt burden from the U.S. firm’s 2007 takeover to 6 billion rand from 26.7 billion rand. The company needs to boost sales and profit at the same time as South African consumer confidence is struggling amid the weakest economic growth since 2009 and unemployment of 27 percent.
Credit sales, which have plunged since Edcon sold its store-card business to Barclays Africa Group Ltd. in 2012, declined 18 percent in the quarter. Tougher South African regulations regarding whether borrowers should be extended credit has “exacerbated this trend over the last 12 months,” the company said.
Rival clothing retailers The Foschini Group Ltd., Truworths International Ltd. and Mr. Price Group Ltd. have started legal action against South Africa’s national credit regulator and department of Trade and Industry over the new rules.
“The difficult consumer environment, led largely by challenging macro-economic factors, continued to weigh on the group’s share of profits,” Brookes said. “To improve the aged stock profile ahead of the third quarter, we undertook increased and focused clearance during the quarter, specifically in the Edgars division.”
Some of Edcon’s stock in September was two years old, Brookes said at the time, and getting rid of it had already cost the company more than 300 million rand. A range of new clothing was needed for the third quarter through December as almost a third of Edcon’s annual sales is generated in that period.
Cutting clothing prices exacerbated a drop in second-quarter profit margin to 31.8 percent from 35.4 percent, Edcon said.
Franklin Templeton, a fund based in San Mateo, California, became Edcon’s single largest shareholder after Bain’s exit, Brookes said Sept. 20.
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