Edcon on the brink after poor quarterlies

Edcon's dismal results for the third quarter to December reinforce analysts' views that the once high-flying clothing retailer has little future in its present form.

The heavily indebted group, the largest nonfood retailer in the country, which was bought in 2007 by Bain Capital for R25-billion in South Africa's largest private equity deal, reported marginally higher sales for the three months. However, its sales figures were far behind those of major rivals, such as Mr Price, for the same period.

But more worrying was that Edcon's financing costs soared 20.6% to R856-million for the quarter, due to its increased debt levels and higher effective interest rates.

The weak performance in the most profitable quarter for retailers prompted management to comment obliquely on the group's crippling debt position. "Edcon continues to assess ways to improve the capital structure," the financial results noted.

This referred to the process of eliminating operational inefficiencies initiated after that quarter.

"This includes the streamlining of roles and responsibilities ... and the leveraging of technological opportunities. This process will result in a reduction of headcount within Edcon's head office," the group said.

But it seems to be too little, too late, say analysts, who believe Edcon will struggle to avoid business rescue.

A buyout of part or all of Edcon is the most favourable outlook for the bondholders.

"They can't continue like this," retail analyst Syd Vianello said. "They're getting closer and closer to D-day."

Edcon's bonds, which have plummeted in value in recent months, are pricing the group as if it were insolvent.

Vianello said that in any capital restructuring, it was unlikely that the bondholders would agree to take equity in Edcon in return for their debt.

And Bain Capital was unlikely to put in more cash.