Edcon cuts store expansion as debt costs mount

SA's largest clothing retailer increased its floor trading space 5.2% in the year to March, less than the 6% it had originally planned, chief financial officer Steve Binnie said yesterday. It has also cut floor space-expansion plans from 5% to 2.5% this year.

Edcon, taken private by US-based firm Bain Capital in 2007 for R25bn, faces the burden of servicing its debts in a far worse economic environment than the boom time in which it delisted.

"The perception is definitely that refurbs have slowed - they are so busy trying to fund the debt that refurbs are slower and roll out plans slower," said Antoinette Joubert, an analyst at Stanlib.

Edcon boosted cash generated from operating activities 62.6% to R3,3bn. This would help cut debt, Binnie said. "We ... did have significant debt on balance sheet. This allowed the opportunity to reduce debt levels."

As of March, Edcon had debt, in the form of corporate bonds, totalling €15bn. Of this, €11,4bn was senior debt, on which it was paying an interest rate of euribor plus 3.25 basis points. A further €3,6bn of junior debt has an interest rate of euribor plus 5.5 basis points.

The company also has short term debt worth R350m and further structure of receivables - secured against revenue sources such as store cards - totalling R4,3bn.

In the year to March, retail sales fell 3% to R21,4bn, as the company tightened lending criteria and as new legislation on cellphone registrations came into effect, curbing airtime sales. On a like-for-like basis, sales fell 4.7%. Sales on credit fell to 50% of the total from 52% a year earlier.

"The combination of credit tightening and the imposition of (cellphone law) Rica, probably led to a loss of five percentage points in sales growth," Binnie said. "If it hadn't been for those, we'd have been in positive territory."

The owner of Edgars and Jet clothing stores said that earnings before interest, tax, depreciation and amortisation fell 15.2% to R2,9bn. Still, the trading environment is improving.

While the gross profit margin was down in the first half from the same period a year earlier, it stabilised in the second, equalling that of a year earlier.

"As we've proceeded into 2010, we've seen performance on like for-like sales improve since Christmas. Gross profit margin has recovered.... As the economy picks up more, we're cautiously optimistic that the trend line will continue and can improve margins."

Source: Business Day