Edcon South Africa

JOHANNESBURG — Edcon, South Africa’s largest apparel retailer, is hoping 2017 will be its turnaround year.

After a tumultuous 2016 that saw the conglomerate — which operates the national department store chain Edgars, the mass market apparel chain Jet and a host of other specialty stores — under new ownership following the exit of U.S. private equity firm Bain Capital, Edcon believes this year signals an opportunity for it to return to profitability. The group will be coming under its creditors’ ownership following the overwhelming adoption of all compromise proposals presented to senior secured creditors at the end of December, paving the way for restructuring.

According to a company-issued statement, “The restructuring will completely transform Edcon’s capital structure, and is designed to reduce the operating company’s third-party debt position from approximately 29 billion South African rands [just under $2 billion at current exchange] to approximately 7 billion South African rands [around $516 million] once completed.”

“This is the last hurdle in the transformation of Edcon’s capital structure,” the company’s chief executive officer Bernie Brookes explained, “and I am very pleased that we will soon be able to move forward with our debt burden having been substantially reduced.”

All the other changes would proceed in tandem with the restructuring, he added. “We have made tremendous progress enhancing the customer experience with better service levels and product offerings, improving employee motivation and authority levels, as well as simplifying many of the processes and structures within the group. We believe these initiatives will return Edcon and its various stores to be leading retailers in their respective sectors,” he said.

There already has been a return to profitability, although an incremental one. From April to November 2016, an eight-month period, the statement declared that “based on preliminary internal information available to Edcon, group sales have been slightly ahead and gross profit margin has been slightly ahead of Edcon’s internal financial forecasts, in each case declining 7 percent when compared to the similar period last fiscal year. Credit sales have been in line with Edcon’s internal financial forecasts.”

From April to October 2016, adjusted earnings before interest, tax, depreciation and amortization, according to information available to Edcon from management accounts, were 435 million South African rands, or about $32 million. “Edcon’s fiscal year-to-date performance has been affected by a large-scale stock clearance initiative, adverse macroeconomic conditions in South Africa, and uncertainty surrounding the restructuring.”

Sales and cost initiatives through June 2017 could increase EBITDA by up to 300 million South African rands, or about $22 million.

Still, Edcon is trying to restructure its operations and improve its bottom line against a backdrop of a South African economy that remains bleak. The International Monetary Fund earlier this month forecast the country’s economy will grow 0.8 percent this year, an increase from the dismal 0.3 percent expected for 2016 but still less than the predicted average global growth of 3.4 percent for 2017. Unemployment remains at an alarming 27 percent.

Analysts at Euromonitor are optimistic about the strategic direction Edcon is taking, pointing out the group’s aims to expand its base of stores both inside and outside South Africa.

“The operation of trendy monobrand chains under license is set to remain a strong focus area for the company,” it said. “With the retailer seeking to cater to South Africa’s increasingly fashion-conscious consumer base, Edcon is expected to increase its portfolio of licensed fashion apparel and footwear brands such as River Island. In addition, the company is set to focus on its ongoing IT projects, including the upgrading and development of the retailer’s online retailing web sites.”

Edcon nevertheless continues to reach out to a wider market and expand its portfolio of global brands, securing exclusive rights to a number of international labels in South Africa. Among the apparel, footwear, accessories and beauty brands available on an exclusive basis in Edgars stores, as well as in their own monobrand units, are Bobbi Brown, Jo Malone, TM Lewin, Jigsaw, River Island, Calvin Klein, Kiehl’s, Tom Tailor, Doc Martens, Lipsy, Topshop, Dune and Vince Camuto, to name a few.

The road won’t be easy for Edcon, however. The group’s competitor, Mr. Price Group, saw its share price drop after its figures for the holiday period showed a decrease of 0.5 percent in total sales to 6.1 billion rands, or about $451 million, in the third quarter to Dec. 31. From a high of 29.973 rands in August 2016, Mr. Price’s shares are now at about 15.250 rands. Mr. Price has a market capitalization of 38.92 billion South African rands, or about $2.8 billion.

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