Ed­con re­turns to profit as debt costs ease af­ter Bain cedes con­trol

CityPress - - Business -

Ed­con re­turned to profit in the sec­ond quar­ter af­ter debt re­pay­ment costs eased fol­low­ing the exit of US pri­vate equity firm Bain Cap­i­tal, while the big­gest cloth­ing re­tailer cleared un­wanted stock to boost sales dur­ing the busy fes­tive pe­riod.

Net in­come for the three months to Septem­ber was R163 mil­lion, the owner of the Edgars and Jet chains said this week. This com­pares with a R2.1 bil­lion loss a year ear­lier.

Cash sales in­creased by 0.8%, al­though a slump in pur­chases on credit meant to­tal rev­enue de­clined by 6.8%.

CEO Bernie Brookes said: “Within each of the Edgars, Jet and spe­cial­ity di­vi­sions, there is sig­nif­i­cant mo­men­tum un­der way re­gard­ing in­ter­nal changes. While we still have some way to go, progress is pleas­ing.”

Un­der Brookes, Ed­con has em­barked on a fouryear plan to turn around the busi­ness, af­ter Bain pulled out from its in­vest­ment in Septem­ber.

This eased the debt bur­den from the US firm’s 2007 takeover to R6 bil­lion from R26.7 bil­lion.

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 a 27% un­em­ploy­ment rate.

Credit sales, which have plunged since Ed­con sold its store-card busi­ness to Bar­clays Africa Group in 2012, de­clined 18% in the quar­ter.

Tougher South African reg­u­la­tions re­gard­ing whether bor­row­ers should be ex­tended credit has “ex­ac­er­bated this trend over the past 12 months”, the com­pany said.

Ri­val cloth­ing re­tail­ers Fos­chini, Tru­worths In­ter­na­tional and Mr Price have started le­gal ac­tion against the na­tional credit reg­u­la­tor and the de­part­ment of trade and in­dus­try over the new rules.

“The dif­fi­cult con­sumer en­vi­ron­ment, led largely by chal­leng­ing macroe­co­nomic 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 R300 mil­lion. A range of new cloth­ing was needed for the third quar­ter to 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% from 35.4%, Ed­con said.

Franklin Tem­ple­ton, a fund based in San Ma­teo in Cal­i­for­nia, be­came Ed­con’s largest share­holder af­ter Bain’s exit in Septem­ber, Brookes said.

Bloomberg –

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