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Edcon continues to deliver performance improvements

10 February 2011

Edcon continues to deliver an improvement in performance in the nine months to December 2010, further consolidating the favourable momentum that has resulted from the business transformation initiatives underway.                                     
Key operating highlights for the period include:

  • Adjusted EBITDA up 8.6% to R2,663 million
  • Comparable sales increased by 6.0%
  • Combined credit activities (Edcon plus OtC) delivering a 68% increase in earning
  • Continued strong cash generation even as the business resumes its growth trajectory

Total sales for the period increased by 7.0%. However, this growth was impacted by tight credit granting policies which commenced at Edcon during 2009.

An improved connection with Edcon’s targeted consumer segments, driven by successful marketing to support enhanced product offers, has underpinned the consistently positive growth that continued in the third quarter as well as the strong cash sales performance (10.8% up in the nine months to December 2010). The success of merchandise execution is improving, with particularly encouraging results in ladies contemporary, menswear and cellular. However, progress still has to be made in certain areas, such as footwear in Edcon’s Discount Division; and as a result, seasonal markdowns have increased in the third quarter 2011.

“The turnaround which we commenced towards the end of last year 2010 continues to deliver improvements with ongoing focus on cash generation and improving margins,” says Steve Ross, CEO of the Edcon Group. “We saw improvements in the merchandise side of our business but there are still areas where we can improve further. The strong cash sales growth confirms the appeal of our merchandise offering.”

Retail sales for the group increased by 6.4% in the quarter to December 2010, with comparable store sales up 5.4%. Sales in the Edgars chain rose by 8.6% driven by strong performance from ladieswear, menswear and cellular. The Discount Division sales were adversely impacted by the credit tightening and closing approximately 2% trading space, however, still increased by 3.9% due mainly to growth in ladieswear, home products and cellular.

Gross profit only increased by 2.5% in the quarter following conservative management of seasonal markdowns over the festive season and input price inflation.

The quality of Edcon’s credit book continues to improve and consolidated annualised bad debts as a percentage of average debtors was 11.6% for the third quarter 2011, down from 12.7% for 2010. The consolidated credit business (including OntheCards) increased year to date profit by 68% to R840 million. As expected, the conservative stance in Credit activities resulted in the number of active accounts decreasing from 4.0 million accounts last year to the current 3.8 million.

Store operating expenses remain stringently controlled, although management is encouraged by the initial results of targeted spending to enhance the in-store experience. Working capital continues to be tightly managed and net debt is at levels below the last fiscal year.

“The steps we have taken to improve operating performance have positioned us to take advantage of the improving economic environment. We remain cautiously optimistic about the prospects for the rest of the financial year,” concludes Ross.

Last month, Edcon announced that CEO Steve Ross would be retiring in May 2012 with Jürgen Schreiber, outgoing CEO of Shoppers Drug Mart in Canada, appointed to take the reins as the new Edcon CEO effective 1 April 2011. Mr Ross will remain on the group’s Board of Directors until May 2012 to ensure effective succession and handover to Mr Schreiber
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