Johannesburg, South Africa - Edcon, the largest non-food retailer in southern Africa with 1,151 stores, reported improved cash generation for the quarter and substantially maintained gross profit but retail sales were behind expectations and costs negatively impacted Adjusted EBITDA.
Retail sales up 1.8%
Gross profit up 0.9%
Same store sales up 0.9%
Improved cash generation
"Trading for the first two months was tough but returned to acceptable levels in June," said Jürgen Schreiber, CEO of Edcon.
The quarters' results consisted of two distinct trading periods. Retail sales for the first two months of the quarter decreased 0.6% compared to a 7.8% increase in sales for June as the weather turned colder. The Edgars division has been impacted by the fact that implementation of various strategic and operational initiatives remain at an early stage. Discount division performance on a like-for-like basis remains fundamentally on track, despite the weakness in the first two months.
Schreiber said an important development for Edgars, which will only make an impact in the next financial year, is the announcement that Edcon, together with House of Busby Proprietary Limited ("Busby"), has been granted the exclusive South African franchise rights for Topshop Topman, the UK-based retail fashion phenomena.
"The inclusion of Topshop Topman is an important pillar of the overall revised Edgars chain strategy but needs to be seen in the context of the various initiatives being undertaken to reinvigorate the stores and attract customers," Schreiber said. "Rollout will initially be through stand-alone stores, later complemented by shop-in-shops, exclusively within key Edgars stores," he added.
The Edgars division grew retail sales by 1.9% for the quarter, helped by the conversion of certain Discom stores to Edgars Active. Same-store sales fell by 2.5%. Edgars was negatively impacted by a weaker first part of the quarter with like-for-like sales decreasing 4.9% in April and May but increasing 1.7% in June. Aggressive markdown activity in the latter part of the quarter decreased gross profit from 42.5% in the prior comparative period to 41.1%.
Same-store retail sales in the Discount division increased 5.1% for the quarter, with only a 1.4% gain in April and May before a 14% increase in June. Discount division experienced market share gains in several important categories and reported improvements in clothing margins, pushing gross profit margins up to 34.0% in the quarter, up from 33.2% a year earlier.
Retail sales increased 1.9% in CNA, increasing gross margins to 33.9% from 33.2% in the first quarter 2012.
Credit and financial services operating profit (reflected in continued and discontinued operations) increased by R18 million, or 9.3%, to R212 million pre tax in the first quarter 2013 following higher profits from the insurance joint ventures.
Edcon's agreement to sell its private label store card portfolio to Absa for approximately R10 billion, as well as the establishment of a long-term strategic relationship for the provision of credit to Edcon customers, is expected to close before the end of the calendar year.
Net financing costs decreased by 3.2% to R688 million in the first quarter 2013. A total of R197 million was spent on capital expenditure in line with expectations.