Wrap Text
Trading Update for 2QFY14 - EDC01
Edcon Holdings Limited
Incorporated in the Republic of South Africa
Registration number 2006/036903/06
Company code: BIEDC1
ISIN: ZAG000085168
TRADING UPDATE AND RESTATEMENT OF PRO FORMA ADJUSTED EBITDA
Highlights
Retail sales for Q2FY14 up 4.7% to 6.5 %
Pro forma adjusted for Q2FY14 EBITDA up 9.0% to 9.5%
Edgars’ transformation on track
Discount division continues to perform well
Trading update
Edcon is in the process of finalising financial results for the 13-
week period ended 28 September 2013 (“second quarter 2014”).
Total retail sales for the second quarter 2014 are expected to be
between R5,950 million and R6,050 million, compared to R5,683 million
for the 13-week period ended 29 September 2012 (“second quarter
2013”). The increase in retail sales is primarily due to a healthy
trading performance from the Discount division as well as a more
positive trading performance in the Edgars division, despite the
temporary disruptions caused by the refurbishment and other
transformation initiatives ongoing in that division but nearing
conclusion. On a same-store basis, retail sales are expected to be
higher by 1.0% to 1.5% compared to the second quarter 2013, primarily
due to the trading performance of the Discount division.
Edgars division retail sales are expected to be between R3,050 million
and R3,100 million for the second quarter 2014, compared to R2,970
million for the second quarter 2013. The expected increase is
primarily due to the continued opening of Edgars Active stores and
promotional campaigns. However, we expect same-store sales to be lower
by 1.5% to 2.0% compared to the second quarter 2013 as the temporary
disruptions from the transformation initiatives continued across
Edgars stores in the quarter. The transformation programme consists of
three key elements; a refurbishment of 72 of the 186 stores as well as
an optimisation and people support programme. An improved product
offering, including the ongoing introduction of new brands is a key
element of the refreshed proposition. The refurbishment element of the
transformation project in Edgars has progressed to schedule. As at the
end of the second quarter 2014, 61 of the 72 stores were completed and
we remain on track to complete all but one of the stores before the
start of the Christmas trading period. Trading in the first 16 stores
- as previously disclosed - continues to trade up between 250 – 500bps
13 weeks post refurbishment when compared to the 19 weeks prior to
refurbishment taking place. Results to date are before the benefit of
the “New Look” marketing campaign, launched in early October 2013 to
create heightened awareness of the changes in Edgars, as the majority
of the stores had been completed and multiple new brands were in the
process of being introduced.
Discount division retail sales are expected to be between R2,300
million and R2,350 million for the second quarter 2014, compared to
R2,118 million for the second quarter 2013. The expected increase is
primarily due a strong performance in ladies and menswear areas and
built on the turnaround measures implemented in the division some 12-
24 months ago, including many initiatives which are similar to the
ones now being applied in the Edgar’s Division. We expect same-store
sales to be higher by 5.0% to 5.5% in the second quarter 2014 compared
to the second quarter 2013.
CNA retail sales are expected to be between R450 million and R460
million for the second quarter 2014, compared to R443 million for the
second quarter 2013, primarily due to the continued sales of digital
merchandise. Same-store retail sales remained generally stable in the
second quarter 2014 compared to the second quarter 2013.
We expect the group gross profit margin to be relatively consistent
with the second quarter 2013, due to improved margins in the Discount
division, as the benefits of the change in product mix and improved
pricing and sourcing initiatives are realized, being offset by
marginally lower margins in the Edgars division.
The growth in other operating costs benefitted positively from the
costs initiatives, although store costs were negatively affected by
the various transformation initiatives in Edgars.
Cash sales continued to grow strongly and are expected to report an
increase of between 17.0% to 17.5% over the prior comparable period, a
positive sign for both our in-store and Thank U loyalty offerings.
However, credit sales are still lacklustre as the credit environment
in South Africa remains tight, with credit sales reducing between 4.0%
to 4.5% over the prior comparative period as new account openings
remained low. As part of ongoing credit initiatives, Edcon, together
with Absa, have begun launching new and enhanced credit products in
October 2013.
Restatement of pro forma adjusted EBITDA
Following queries and to provide a more consistent and comparable
analysis, Edcon is changing the methodology for its pro forma adjusted
EBITDA as it relates to the sale of the trade receivables book from
adjusting for the “percentage of the book actually sold” - which
requires a constant restatement of comparatives - to adjusting for
“100% of the book”, ensuring reported numbers remain comparable in the
future. Edcon has currently sold 93.1% of its private label store card
programme to Absa and has a high level of confidence that the
remaining portion of the book will be sold or collected. Edcon
therefore believes that using a 100% adjustment to pro forma Adjusted
EBITDA is appropriate. We expect that our pro forma adjusted EBITDA
for the second quarter 2014, after giving pro forma effect to the sale
of 100% of the book, will be between 9.0% and 9.5% higher than the
prior comparable period, mainly due to a stronger operational
performance. If the pro forma adjusted EBITDA for the 13-week period
ended 29 June 2013 (“first quarter 2014”) was reported on the same
“100% of book sold” basis it would have been 8.7% higher than first
quarter 2013 (a 6.0% increase was previously reported on a “book
actually sold to date” basis). Pro forma adjusted EBITDA has not been
adjusted for lost sales due to the refurbishment and other
transformation initiatives ongoing in the Edgars division.
This information is based on our internal management accounts that may
not be fully comparable with our audited consolidated financial
statements or unaudited interim condensed consolidated financial
statements. Such information has been prepared by, and is the
responsibility of, our management, and has not been audited, reviewed
or verified, nor have any procedures been completed by our auditors
with respect thereto, and you should not place undue reliance thereon.
It is subject to confirmation in our unaudited interim condensed
consolidated financial statements and quarterly report for the 26-week
period ended 28 September 2013 which is expected to be announced on 21
November 2013.
24 October 2013
Debt Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
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