July 2, 2004
By Jodie Ginsberg
Johannesburg - Prospects looked good for the retail market as low inflation and interest rates spur a sustained spending spree, Edgars Consolidated Stores (Edcon) chief executive Stephen Ross said yesterday.
"We are at the beginning, it seems, of a wonderful consumer cycle," said Ross.
Edcon doubled its profits in the 2003/04 financial year thanks to a boost in consumer spending and a turnaround strategy begun when Ross took up the post six years ago.
Though Ross stresses that Edgar's success story is the work of more then one person, analysts said his succession would have to be managed carefully.
Ross said the board might give some indications by the end of the year of its plans for after 2006, when his contract expired. "I've got no immediate plans to leave," he added.
"I feel comfortable that before the end of the year the board will clarify my tenure."
Although he has cautioned that the now more efficient Edcon might not be able to sustain stellar growth, Ross is confident the group is at a stage where it can weather storms.
"I would like to think that what we are in the process of doing is improving our business model so that we are resilient to all sorts of business conditions."
At the moment, though, conditions could hardly be better for South African retailers.
Maximum interest rates, household indebtedness and prime lending rates are at multi-year lows, and workers in many sectors of the economy are due above-inflation wage increases.
"Business continues to perform well," Ross said of the group's performance since its March year-end, adding that Edcon would give detailed guidance at its annual general meeting later this month.
In 1998 Ross was brought in by Edcon's biggest shareholder, SABMiller, with a mandate to lift flagging sales and boost earnings. In the six years, revenue at the group, which operates Edgars department stores and discount retailer Jet, has almost doubled to R10.5 billion in 2004 and compound earnings growth is close to 20 percent a year.
That has fed into the share price, which has risen dramatically from below R20 at the end of 1998. Yesterday it lost 10c to R147.90. The general retailers sector gained 0.63 percent.
"I think that we have got plenty of legs left in the stock," Ross said, noting the group was still relatively cheap at a price:earnings ratio of about 9.
Analysts put Edcon's 12-month price target at about R180 a share.
Publisher: Business Report
Source: Business Report
