Edcon posts wider loss on falling credit sales
EDCON, the embattled South African clothing retailer, posted a wider June quarter loss compared with a year-ago as the company struggled with falling credit sales.
The loss swelled to R828 million in the three-month period to June 27 compared with R499m last year. Edcon, whose store brands include Edgars, Jet and CNA, is also grappling with a debt burden that has added to the company’s woes.
Based on its recent financials, Edcon is technically insolvent. Its total current liabilities in the recent quarter were R11.92 billion, exceeding its total current assets of R8.67bn. Sales in the quarter declined 0.9 percent compared with the same quarter last year.
Credit sales dropped 10.5 percent, while cash sales, which account for 58 percent of the total, grew by 7.4 percent.
Credit sales now contributed 42 percent of total sales down from 46.5 percent in the first quarter of last year.
Rand weakness
“Declining credit sales have been impacting Edcon’s results since the sale of its trade receivables book and notwithstanding a healthy pickup of its own, relatively small, trade receivables book,” outgoing chief executive Jürgen Schreiber said, a week before he leaves the company.
He said the recent weakness in the rand “is not helping as it will lead to price increases”.
South African consumer confidence dropped to a 14-year low in the second quarter of this year, hit by frequent power cuts and rising fuel prices that weighed on the economy.
The country’s currency tumbled to the lowest level since 2001 on Wednesday, while retail sales growth slowed to 2.4 percent in May from 3.4 percent the previous month.
The trading environment remained weak with low economic growth coupled with higher inflation, power cuts which weighed on consumers and the overall environment, he said.
He said the firm was focusing on improving its liquidity and boosting its balance sheet.
Edcon’s woes date back to 2007 when it was taken over by US Bain Capital Partners in a private equity deal for R25bn.
Jean Pierre Verster, an analyst with J 36ONE, said Edcon had breathing room after the completion of an exchange offer last month, but noted that it would be sometime before the cash-flow metrics improved.
“We are seeing pressure on Edcon’s discount segment where sales have decreased. This is a concern because it has been a strong performer in the past... It has the highest probability of being sold to address Edcon’s debt,” said Verster.
Its discount division – trading under the banners of Jet, Jet Mart and Legit – has been most impacted by the contraction in credit sales.
Total sales from the discount division dropped by 3.1 percent in the quarter.
Total cash sales were up 7.1 percent, but credit sales declined by 17.8 percent.
Edcon announced last month that it had appointed Bernard Brookes as its new chief executive, with effect from the end of September.