Edgars: signs of a big turnaround?

CEO BERNIE BROOKES’ ASTUTENESS SHOWS Sales of ladieswear, childrenswear, footwear and cosmetics are up, while menswear, homeware, cellular and active remain a drag.

Much of the hard work has been done by Edcon CEO Bernie Brookes, who prevented an outright collapse of the massive retailer labouring under private equity debt by convincing debtors to convert to equity.

The Aussie also tempered predecessor Jurgen Schreiber’s costly foray into licensing and launching international brands. Underperforming brands were ruthlessly exited. Edcon doubled down on its well-known, largely neglected private label brands. On the whole, range and fashion is looking and selling better.

These interventions solved two “burning platforms” (the debt pile and its appeal to customers). There was a third to solve: supplying credit to customers. Absa tightened the supply of store credit almost immediately after it bought the retailer’s book and sales have suffered since. Edcon went back to lending to customers itself.

This strategy is starting to pay off, with the in-house trade receivables book at R660 million as at September 23, effectively triple what it was before the revised agreement with Absa in November 2016.

Credit sales have stablised at around 35% to 36% of group retail sales – an important step. In Q2 (to September), credit sales were 36.3%. Encouragingly, the rate of decline in credit sales has slowed.

But this is Edcon. What of Edgars?

Six months into the 2018 fiscal year, retail sales in the Edgars division (Edgars, Boardmans, Red Square) are down only 1.9%. Considering the broader macro environment, this is a huge achievement (also given that the FY2017 year-to-date figure was -7.2%).

For two quarters in a row, sales of ladieswear, childrenswear, footwear and cosmetics are up, while menswear, homeware, cellular and active remain a drag on performance.

The group points out that “whilst cellular decreased, the decrease compared to the second quarter of 2017 was marginal following improvement initiatives implemented”. Presumably, this will plop into the growth category, with menswear, homeware and active the problems. Homeware (Boardmans) will likely continue to be a drag on this division’s performance. Between July and September, Edgars closed three Boardmans stores.

The trick is for Edgars to fix menswear and keep the other segments growing. Active and homeware have some structural problems which the group is addressing, but these are far smaller than the other categories. Margins are stable, and higher than the year-ago periods.

It’s tempting, therefore, to wonder if Edgars (and the broader group) has already hit the bottom and turned the corner?

One major problem remains. The number of active account holders has slipped further. Group account holders are down another 98 000 in the most recent quarter, to end at 2.577 million.

Credit sales are up in Jet and stablising in Edgars.

An enormous amount hinges on the peak festive season. If Edcon – and its two engines Edgars and Jet – produce a solid result for this quarter, incoming CEO Grant Pattison will surely be more than a little optimistic about his odds of restoring the group to its former glory.

Hilton Tarrant works at immedia.