South African clothing retailer Edcon on Wednesday reported a 68% increase in headline earnings per share to R26,61 for the year ended April 2 2005, from R15,88 a year ago.
A final dividend of 851 cents per share was declared, up 63% from a year ago, making a total dividend of R13,45 — 75% higher than the 768 cents of a year ago.
The results far exceeded the I-Net Bridge consensus of seven analysts, who had forecast a 48% increase in Edcon’s headline earnings per share to R23,71, with the range of forecasts between R22,50 and R26,18. It also beat Edcon’s own projections of an approximate 60% increase as stated in its January trading statement.
The growth comes on the back of exceptional headline earnings rises of 102% and 154% attained in the previous two financial years.
Edcon’s retail interests include the chains Edgars, Jet, Cuthberts, Sales House, Legit, Super Mart and CNA, as well as Boardmans.
Total revenue (retail sales) for the year rose by 29% to R13,6-billion, from R10,53-billion a year earlier, while gross profit was up 32% to R5,4-billion and trading profit jumped 84% to R1,64-billion.
The group’s gross profit margin improved by 80 basis points to 39,8%, which was attributable, Edcon said, to lower input costs resulting from increased volumes purchased, and the securing of additional sourcing options. In addition, group stockturn rose to 5,8 times from 5,2 times in 2004.
Confidence for the future
Looking ahead, Edcon said its board is confident, based on the current momentum in the industry, that clothing, footwear and textile sales will continue to grow in real terms in the new year, albeit at a slower pace than in the past year. Edcon sales will also be boosted by the opening of an estimated additional 10% average retail space.
However, it cautioned, the new financial year contains one less trading week, which contributed 2% of sales and 4% of earnings last year.
Productivity will be enhanced further through economies of scale from the inclusion of new stores and a continued focus on operational efficiencies. Consequently, the group expects another meaningful rise in earnings, above that of the sales growth.
Returning to the 2005 year, Edcon said that of the 29% rise in its sales, 3% related to the extra trading week during the year and 2% to the inclusion of Boardmans. The remaining increase, it said, was realised with only 7% additional average retail space.
Given that Retailers’ Liaison Committee statistics showed nominal clothing, footwear and textile sales growth of 19% in the year to March 2005, with deflation of 4% in the sector, Edcon had continued to gain market share.
Return on shareholders’ equity reached 40,3% for the year, far ahead of the group’s over-time goal of 25%.
Cash flow from operations jumped to R1,4-billion from R201-million the previous year, supplemented by securitisation proceeds totalling R939-million. Cash and cash equivalents at year-end stood at R291-million.
Edcon said it plans to securitise a further R800-million in new receivables via its OntheCards vehicle during August 2005, as it lowers the company’s funding costs and provides liquidity to fund future internal and external expansion opportunities.
Divisional performance
Turning to the company’s divisional performance, the groups’ department-stores division, incorporating Edgars, CNA and Boardmans, trading profit rose 68% on the back of productivity enhancements in merchandise, space and staff management.
Edgars was able to grow its turnover by an exceptional 26%, despite no price inflation and a rise of only 6% in average retail space. The chain’s gross profit margin jumped by 120 basis points to 42,3%.
Stationers chain CNA, meanwhile, saw its sales rise by 16% with price deflation of 3%. The chain added 10% to its retail space, while stock turn improved to 3,4 times. Aggressive markdowns to clear slow-moving stock, the mix of products sold and more competitive pricing had constrained the gross profit margin to 32,5%.
Furniture, kitchenware and home decor group Boardmans performed in line with Edcon’s targets, with sales totalling R241-million and a gross profit margin of 38,6% in its first year as part of the group.
The discount division, incorporating Jet and Jet Mart (previously Super Mart), recorded outstanding results with a 78% increase in trading profit. Jet’s sales rose by 34% despite deflation of 18% and only 5% additional average retail space, while its gross profit margin improved to 39,3% from 38%.
At Jet Mart, sales were flat, with deflation running at 3%, Edcon said. However, the chain was starting to benefit from management’s operational strategy, recording 7% turnover growth in the second half of the year. The gross profit margin of 24,1% was consistent with that of the previous year, but impacted by aggressive markdowns to clear old stock and inappropriate merchandise.
Edcon’s cellphone business recorded an impressive 45% increase in sales to R1,16-billion.
At Edcon’s manufacturing division, the operations incurred a marginal loss of R4-million, down from the R17-million loss of the previous year, following the turnaround in the second half of last year. The reliance on export business had been reduced, it said, and costs had been streamlined.
Additional wealth
Commenting on the results, Edcon CEO Steve Ross said his team of more than 18 000 employees had generated returns well beyond the company’s internal targets, creating a total of R4-billion of additional wealth, in cash value-added terms, for the South African economy.
“Shareholders have benefited from our success by earning a 40,3% return on their equity. In recognition of their role in creating a winning internal culture, 37% of the wealth has been directed to employees’ remuneration. Furthermore, we paid R513-million in taxes and created an additional 2 651 jobs during the year.
“More affluence, coupled with service delivery from government, in terms of housing, water and electricity, will continue to stimulate demand for Edcon’s products,” Ross added.
“We believe this is a structural, not simply a cyclical, economic upturn and hence our stakeholders should expect another meaningful rise in earnings, above that of the sales growth, for the year ahead.” — I-Net Bridge