Edcon posts first profit since 2012
Struggling retailer Edcon this week delivered its first net profit since 2012 as a result of the restructuring of the company’s debt last year. However, in contrast, a key measure of profit fell.
The group’s adjusted earnings before interest, tax, depreciation and amortisation, which analysts watch closely as a profit measure, fell by 9.8% in the December quarter to R1.127 billion from R1.25 billion in the same quarter in 2014.
Daniel Isaacs, an analyst with 36One Asset Management, said the results reflected that the company was under strain and had fundamental problems.
For the December quarter, Edcon, which owns Edgars, Jet and CNA, reported a profit of R3.038 billion compared with a loss of R180 million for the same quarter in 2014. For the first three quarters of the company’s 2016 financial year, the group reported a profit of R204 million compared with a loss of R1.357 billion during the same period in the 2015 financial year.
Edcon CEO Bernie Brookes said that the key to the return to profit for Edcon was a refinancing, or an exchange offer, between the company and its lenders that resulted in the retailer reducing its debt by R4.5 billion. The reduction in Edcon’s debt meant the company was no longer under pressure to sell assets to cut debt.
Brookes became the boss of Edcon at the end of September after he left Australia’s largest retail department store, Myer.
However, despite the debt restructuring at Edcon, by the end of the December quarter, the group’s total debt of almost R37 billion was greater than its assets by R5.4 billion, which means that if all of Edcon’s assets were sold off, its shareholders would be left with a loss.
Brookes said that Edcon was looking to save R500 million, which could be made up of R250 million from job cuts and R250 million in other costs, including travel expenses and a reduction in advertising agency costs.
He said that Edcon continued to lose market share to its retail competitors in the December quarter. “Every retailer in town is eating our lunch,” Brookes said. Edcon is losing market share to Woolworths, Truworths and Mr Price, as well as international retailers.
Brookes said that one problem at Edcon was that the group had too many international brands, and some of its customers couldn’t afford these brands and didn’t recognise them.