Listed retailer Edgars Consolidated Stores (Edcon) has reported an 88% rise in its headline earnings per share for the six months to the end of September 2004 to 968 cents, from 516 cents a year earlier.
The group doubled its interim dividend while maintaining two times earnings cover, to 494 cents per share, from 247 cents in 2003.
The results exceeded the group’s and market expectations, as Edcon had advised in a July trading statement that it expected headline earnings per share to rise by between 60% and 80%.
Edcon comprises the retail clothing and footwear chains of Edgars and Jet, Super Mart, homewares group Boardmans, and stationery and books chain CNA.
It has grouped its businesses into two broad divisions based on the target markets they serve — the department-stores division — including Edgars, CNA and Boardmans, focusing on middle- and upper-income consumers — and the discount division, incorporating Jet and Super Mart, aimed at the lower-income market.
Edcon said its sales increased by 31% to R6,03-billion, from R4,6-billion a year earlier, 6% of which was attributable to the non-comparable additional trading week included in the six-month period, and 2% to Boardmans, the acquisition of which became effective in April 2004.
The remaining gain was achieved with only 6% extra average retail space, indicating a 17% increase in comparable store growth.
Trading profit was up 111% to R599-million, from R283,4-million previously, while attributable earnings doubled to R449-million. This included R52-million of earnings relating to the extra trading week, accounting for 22% of the increase in headline earnings per share.
Edcon’s gross profit margin improved 140 basis points over the period, reaching its medium-term target of 40%, it said, thanks to the benefits of the company’s purchasing power arising from greater volumes and efficient supply-chain processes.
In the department-stores division, the Edgars chain saw turnover rise 29% to R3,28-billion, with selling price inflation at only 1% and additional average trading space of 3%. The chain had reaped the benefits of a focused merchandise strategy, improved efficiency levels and disciplined expense management, the company said.
Tight inventory controls had allowed it to raise its stockturn from five times last September to 5,6 times. The chain procured more sourcing options and obtained lower input costs through a higher-volume order strategy, resulting in an improvement in gross profit margin from 40,4% to 42,6%.
Sales for the CNA chain rose by 20% to R414,5-million, despite deflation of 7%, the group said. The purchase of ThisDay stores in November 2003 added 13% to the average trading space. Aggressive markdowns to clear slow-moving stock, mix of product sold and more competitive pricing produced a 311% gross profit margin, while stockturn improved to 2,9 times.
Boardmans had been successfully integrated into Edcon’s systems, distribution and support infrastructures. The chain achieved sales of R98,3-million and a gross profit margin of 38,8%, in line with Edcon’s targets.
The discount division, meanwhile, saw Jet record a 37% rise in sales to R2,07-billion, despite deflation of 10% and a 4% increase in average retail space.
Jet’s gross profit margin improved by 220 basis points to 39,4%, enhanced by efficient replenishment processes and improved input margins.
In addition, stockturn rose from 6,5 times in 2003 to 8,1 times.
Sales in Super Mart, however, fell by 12% to R164,8-million, with deflation running at 9%. Sales and margins had, in the short term, “unavoidably” been impacted by the planned introduction of the group’s merchandise systems, as well as aggressive markdowns to clear aged, discontinued and damaged merchandise.
The focus at Super Mart had been to reduce the number of stock items, with the intention of placing volume behind core lines and providing customers with competitive prices. Encouragingly, Edcon said, stockturn had already improved from 4,1 to 4,7 times.
Edcon’s manufacturing division continued its turnaround, with losses falling to R1-million from R19-million the previous year, as the division managed to increase volumes with local customers and keep expenses tightly controlled to counteract the impact of the strong rand. In the process, it was able to reduce store costs as a percentage of sales from 19% to 18%.
Although significantly lower chargeable interest rates had a negative impact on earnings, the group’s credit and financial-services division recorded a 58% rise in total profit from financing to R86-million.
Although there was a large expansion in credit active customers, with the account base growing by approximately 230 000 over the six months, Edcon said 87% of the accounts receivable were current and able to purchase, the same level as the previous year.
Attributable cash flow per share improved substantially, to 1 363 cents from 308 cents the previous year, while net interest-bearing debt stood at R78-million, representing gearing of only 3%. The group also had R1,09-billion in unutilised borrowing facilities.
Looking ahead, Edcon said that, based on current estimates, it expects its headline earnings per share for the year to the end of March next year to be approximately 60% higher than those of the previous year. Of this, 7% could be ascribed to the inclusion of the scheduled non-comparable additional trading week.
“Consumer confidence, boosted by real wage increases and low interest rates, is expected to sustain the current momentum in retail spending,” the group said. “This, coupled with the continuing success of the Edcon product offering, operational efficiencies and strong collections, gives the board reason to be optimistic about the prospects for the coming festive season.” — I-Net Bridge