Edcon has lost 400 000 patrons

Initiative to lure back clients

AILING retailer Edcon yesterday said that it had shed nearly 400 000 customers during the three months ended in December as its aggressive discount strategy failed to lift its profit margins.

The group said it lost 382 000 clients during the period, blaming the National Credit Regulator’s affordability regulations implemented last year for the sharp decline and the increasing credit limits on customers.

The company said it now pinned its growth hopes on a new credit initiative with banking giant Absa to lure back the lost customers.

New credit accounts

“Absa is to book approximately 20 percent of new credit accounts with the balance of new credit accounts being funded by the Group – Edcon’s inhouse trade receivables book at December 24, 2016 – was R330 million, up R153m compared to the R177m as at September 24, 2016, and up R185m from R145m as at December 26, 2015,” the company said.

Edcon reported that its gross profit declined 11 percent to R2.9 billion during the period, while trading profit plummeted by 67 percent to R253m.

It said adjusted earnings before interest, tax, depreciation and amortisation nosedived by 16.3 percent to R963m.

The albatross for the company was its retail credit sales that decreased by 8.7 percent in the period while its retail cash sales went up by a marginal 0.7 percent.

Edcon’s chief executive, Bernie Brookes, said the company’s overall gross profit margin declined by 310 basis points from 37.5 percent during the comparative period last year to 34.4 percent due to the dis- counting strategy it undertook.

“The margin decline was due to planned better entry price points introduced across all divisions as well as additional discounts offered to Edgars’ customers during the quarter for which the full retail sales benefit will only be realised during the fourth quarter of 2017,” Brookes said.

“Additionally, the margin was negatively affected by aggressive markdown and clearance activity in the Specialty division.” The company had been lumbered with debt since Bain Capital bought the group in 2007 for R25bn in a leveraged buyout. But last year Bain left the business after its creditors entered into a $1.5bn (R19.6bn) debt-to-equity swop deal with with the American company.

“As a result, the debt in the operational company Edcon Limited within the group post the transaction has reduced to approximately R7bn,” the company said. The company had in recent years lost market share to its competitors Truworths, Mr Price and Foschini.

Earlier this month the retailer’s credit rating was downgraded to “D” by Standard and Poor’s (S&P). “We view the debt restructuring as distressed, as investors receive less than the promise of the original securities, which is tantamount to a default,” S&P said.

36One Asset Management fund manager Evan Walker said while Edcon results were disappointing, the group had made headway on its debt repayments.