Cellphone laws hurting Edcon sales

The privately held company on Thursday, 19 November 2009, said new registration requirements for cellphones had crimped sales at its flagship Edgars chain, stationer CNA and discount stores such as Jet, Legit and Discom.

At Edgars, where sales fell 4.2% in the six months to September, the company listed lower cellphone sales as the first reason for the decline.

Edcon's experience mirrors that of rival retailer Foschini, which earlier this month blamed lower sales in part on the Regulation of Interception of Communications Act (Rica), which has required people to register their cellphones since July by showing ID books and proof of address.

“The implementation of Rica has had a detrimental effect on retailers,” RMB retail analyst Evan Walker said.

He said it was still too early to quantify the effect of Rica on cellphone sales, but said the biggest effect would likely be felt by stores such as lower end rival Pep.

Sales at CNA fell 2.1%. They declined 8.9% in the discount division. Edcon's same-store sales, measuring only stores that have been open for 12 months or longer, dropped 9.1%.

Edcon's overall sales fell 6% to R4,5bn from R4,7bn in the second quarter. Separate figures showed sales in the six months to September slipped to R9,8bn from R9,9bn.

Credit sales dropped from 52% last year to 49% for the second quarter as restrictions were imposed on higher risk customers.

“It's a difficult and challenging macroeconomic situation we are currently in,” Edcon chief financial officer Steve Binnie said. “We have been conservative in credit granting and the way we manage our markdowns. As a consequence, it has had an impact on the top line.”

Gross profit as a percentage of retail sales fell to 35.8% from 37%.

“Given the size of Edcon, it is not surprising that its results mirror what we saw in the general retail stats,” Absa Asset Management analyst Chris Gilmour said.

“It's a reasonable set of results, something you would expect from a retailer its size.”

Figures this week showed retail sales fell a worse than expected 5.1% in September from a year earlier. Analysts had forecast a 4.4% decline.

Edcon's bad-debt level was little changed from a year earlier at 12.1% of the debtors' book.

“We believe that our conservative approach to managing risks in terms of credit granting, controlling costs and stock levels, will reap benefits in the coming months, as the economy starts to recover,” Edcon CEO Steve Ross said.

Gilmour agreed. “From a financial point of view they are looking better than they have in a long time. Their debt has come down significantly.”

Edcon, which was bought and delisted by private equity company Bain Capital in 2007 for R25bn, reported results yesterday to keep holders of the company's listed corporate debt, up to date.

Source: Business Day

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