Strategic initiatives weigh on Edcon's Dec Q3 sales

Edcon's announcement mirrors the festive season trading updates from some of its listed retail peers‚ which reported lukewarm sales figures over the end-of-year period.

Chief Executive Jürgen Schreiber said while the group increased its gross profit margin by 0.8 percentage points to 37.8%‚ "the overall results for the third quarter were negatively impacted by the significant strategic initiatives underway within the organisation".

"The business is being positioned to drive revenue growth and unlock further margin expansion. We are already seeing some positive results‚ giving us confidence in the future‚" Schreiber said.

Edcon said the decline in total sales was mainly due to the performance of the Discount division‚ where retail sales declined 6%‚ and was compounded by the impact of new strategic initiatives being implemented across the group. Edgars' retail sales were 4% higher.

Capital expenditure increased by 27.1% to R211m‚ and during the quarter‚ Edcon opened 56 new stores‚ including three conversions‚ while it closed nine stores. This‚ combined with store refurbishments‚ meant investments in store fixtures was R167m.

During the period‚ total revenues increased 0.8% as the decline in retail sales was offset by growth in insurance revenue and an increase in Club revenue.

Schreiber said the closing of the sale of the trade receivables book to Absa during the period was "an important enabler for future growth within Edcon".

"This transaction resulted in a reduction in absolute leverage and the group is now positioned as a cash business‚ with the added advantage of still offering credit. The South African retail apparel market remains relatively resilient and this will certainly support and contribute to the group's turnaround strategy‚" he said.

The group's continued growth of its African operations through the Jet‚ JetMart and Edgars Active formats "is encouraging and the company continues to expand its footprint at a steady pace"‚ Edcon said.

Four stores opened in Mozambique in mid-December. African sales contributed 6.5% of total retail sales for the period.

Gryphon Asset Management CEO and chief analyst Abri du Plessis said earlier this month that Edcon's poor sales for the period was "proof of the tough retail environment which we've seen from many of the other retailers".

"For Edcon‚ having problems other than the tougher economic environment‚ it's going to be quite an uphill battle‚" du Plessis said.