Tag: Bain

Edcon may run out of money in 2019

According to a report by the Financial Mail, Edgars may “effectively run out capital towards the end of 2019”.

After Bain Capital paid R25-billion for the company, the retailer’s balance sheet saw debt of R17.3-billion – an amount that nearly sank the company as the 2008 financial crisis hit.

Since 2012, Edcon has lost an estimated 22% of its clothing and footwear market share where it once held more than 50% of the sector, according to Financial Mail.

Edcon still owes an estimated R7-billion to its lenders.

On a positive note, Stats SA reported that retail sales grew 2.5% for the year to August — almost twice the 1.4% annualised growth reported in July.

The problem is, says the Financial Mail, that Edcon is making a loss, and “someone has to fund the loss”. This falls to the shareholders and the problem under discussion is “how long will they fund these losses”?

Edcon’s most recent set of accounts, for the year to March 2018, saw sales down 4.8% to R24.1-billion. Trading losses ballooned to R1.36-billion from R373-million in 2017. Even though R20-billion in debt was written off in 2016, Edcon incurred R1.53-billion in “financing costs” to repay remaining debt. The three months to June were no better: sales were down 8.8%, and the quarter saw trading losses of R225-million.

The lack of customers are evident at even flagship Edgars stores. “At Melrose Arch, most of the initial space Edgars occupied is boarded up, reinforcing the impression of a gradually disintegrating department store,” reports Financial Mail.

As many as one in five South Africans used to shop at one of the 1 350 stores owned by Edcon. Despite the downward trend, Edgars has remained SA’s largest nonfood retailer, accounting for nearly a third of the clothing and footwear market.

The company employs more than 27 000 staff members, with an indirect effect on a further 100 000 people.

Edcon returned to profit in the second quarter after debt repayment costs eased following the exit of US private equity firm Bain Capital, while the retailer cleared unwanted stock to boost sales over the busy festive period.

Net income for the three months through September was R163m, the Johannesburg-based owner of the Edgars and Jet chains said in an emailed statement on Tuesday. That compares with a R2.1bn loss a year earlier.

Cash sales increased 0.8%, although a slump in purchases on credit meant total revenue declined 6.8%.

“Within each of the Edgars, Jet and Specialty divisions, there is significant momentum underway of internal change,” CEO Bernie Brookes says. “While we still have some way to go, progress is pleasing.”

Under Brookes, Edcon is battling to turn around the business after Bain’s exit in September eased the debt burden from the US firm’s 2007 takeover to R6bn from R26.7bn.

The company needs to boost sales and profit at the same time as South African consumer confidence is struggling amid the weakest economic growth since 2009 and unemployment of 27%.

“The difficult consumer environment, led largely by challenging macro-economic factors, continued to weigh on the group’s share of profits,” Brookes says.

“To improve the aged stock profile ahead of the third quarter, we undertook increased and focused clearance during the quarter, specifically in the Edgars division.”

Franklin Templeton, a fund based in San Mateo, California, became Edcon’s single largest shareholder after Bain’s exit, Brookes says.

By John Bowker for Fin24

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My Office News Ⓒ 2017 - Designed by A Collective


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