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Edcon reports ongoing growth

15 November 2006

Edcon today announced interim results for the six months ended 30 September 2006 in line with management's expectations. 

The company reported fully diluted headline earnings per share for the period of 131 cents, up 20%, and declared a dividend for the first half of 71 cents per share, up 15% on the same period last year.

The company's retail sales grew 13% to R8.3 billion. This was accompanied by an increase in trading profit of 17% to R911 million, up from R780 million in the prior year. This growth was achieved in an environment of somewhat slower, albeit still robust growth in consumer spending, despite two interest rate increases in the period.

"Our performance demonstrates that our strategy of increasing our trading space, enlarging the account base, a disciplined approach to cost containment, as well as honing our merchandise systems and assortment control processes has enabled us to offer our customers what they want at prices they can afford and deliver value to our shareholders," said CEO Steve Ross.

He said that while a net 62 new stores were opened covering some 91 000 square meters in the past 12 months, closing inventory for the period was only 3% higher than the same time last year.

He said that while a net 62 new stores were opened covering some 91 000 square meters in the past 12 months, closing inventory for the period was only 3% higher than the same time last year.

Ross highlighted the following additional salient financial features:

  • Gross profit margin increased from 38,1% to 38,6%
  • The group's stock turn improved from 5,9 to 6,0 times
  • Operating margins grew from 11,3% to 11,5%
  • Cash EBITDA growth of 16%
  • Gearing of only 5%

Both the Edgars and the Discount Division continued to use the group's sophisticated supply chain management techniques and buying power to contain selling price inflation to only 1% for their customers, notwithstanding the higher fuel prices and weaker exchange rate over the period. 

The Department Store Division - Edgars and CNA - contributed 61% to Edcon's sales, reporting sales growth of 16% over the previous year. Tight cost management and productivity improvements enabled this division to grow its trading profit by 27%, translating into an improvement in it trading margin from 11,2% to 12,3%. The Edgars chain, which comprises Edgars, Boardmans, Red Square, Prato and Temptations, reported a 14% increase in sales. Its gross profit margin grew from 41,1% to 41,6%, while a stock turn rose to 5,6 times. CNA increased its sales by 29% from R501 million to R647 million, utilising Edcon's merchandise systems to provide more appropriate product offerings. The chain's gross profit margin improved from 31,1% to 33,4% and its stock turn improved to 4,1 times from 3,5 times last year.

The Discount Division (Jet, Jet Mart, Jet Shoes, Legit and Blacksnow), grew sales by 12%, contributing R3,2 billion, or 39% to the group's sales. The Division's gross profit margin of 35,6% was in line with the prior year, despite action being taken to clear inventory in its underperforming ladieswear and footwear businesses. This affected stock turn, which slowed from 7,8 to 7,2, in line with last financial year's stock turn. The Division's trading profit grew by 13% and its trading margin was maintained at 9,1%.

As expected, profits in the Credit and Financial Services Division declined and at R113 million were 3% below last year. The wider penetration of insurance products amongst the customer base continues to drive the expansion of the financial services business which was up R17 million over the previous year. This effectively offsets the rising cost of credit as a result of the anticipated higher level of net bad debt write-offs. Detailed profitability calculations confirm that the new accounts comfortably absorb a higher level of net bad debt write-offs and have not only contributed meaningfully to Group profitability since their opening but will continue to boost earnings in the years ahead.

The overall condition of the book remains good with accounts that are current and able to purchase at 84%, being down slightly from the 85% achieved in March 2006.

"While we are concerned about the quotas the Department of Trade and Industry has imposed on certain categories of imported items from China and their affect on inflation, quality and consumer choice, we remain optimistic about the market and our opportunities in southern Africa," Ross said. "Job creation, on the back of infrastructure development projects and continued consumer confidence, spells ongoing opportunities for a customer-centric retailer like Edcon," he concluded.

In addition, Ross said the sale of 51% of Edcon's manufacturing arm, Celrose, to management and staff was proceeding. Conclusion of the transaction was expected in the second half of the financial year.


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