HomeBusiness DigestLeaner stockholdings could eat into Edgars profits - chairman warns

Leaner stockholdings could eat into Edgars profits – chairman warns

Staff Writer

LEANER stockholdings necessitated by the need to reduce borrowings in the wake of higher interest rates in the open market could reduce increased profitability at Edgars Stores Ltd, chairman Joh

n Mkushi has said.

The company’s earnings attributable to shareholders amounted to $22 billion this year.

Mkushi said working capital requirements consumed $36,5 billion during the year as inflation and the need to restock drove asset growth.

He said lower wage and salary awards as employees grapple with higher interest rates and reduced margins could also be a cause for concern this year.

In his statement accompanying the company’s results for the 52 weeks ending January 3 Mkushi said tight margins brought about by higher general inflation against lower inflation in the clothing, footwear and textile sector could also hamper growth.

Total sales for Edgars shot up 452% to stand at $84 billion, which achievement was ahead of general inflation that averaged 432% for the year.

The Edgars chain grew by 462%.

“This could have been higher were it not for the under-stocked position in the first quarter and the obvious need to revise our credit policy,” Mkushi said.

He said the Express chain had lower growth achieving only 427% over the prior year.

“Inadequate stocks at the beginning of the year and the shortage of cash during the year adversely affected its sales,” Mkushi said.

The company’s manufacturing division reported an impressive performance achieving sales growth of 507%.

“All the three factories had full order books and the high level of fabric stocks carried over from the previous year ensured timeous deliveries to all customers,” Mkushi said.

Headline earnings per share increased by 610% well ahead of sales growth and inflation.

Profitability was enhanced by an improvement in gross margins and well-controlled overheads.

Mkushi said lower inflationary sales growth, as price increases were likely to be smothered by reduced demand and price cuts to motivate unit sales.

“Stocks grew by 1 019% from a very low prior year base following better than expected 2002 Christmas trading,” Mkushi said. “In contrast, trading in November and December 2003 was slightly below internal optimistic expectations.”

The chairman lamented 2003, describing it as one of the most challenging years ever.

He said the year had been characterised by a “volatile” and “fragile” trading environment.

There was an acute shortage of cash for most of the year prior to the introduction of bearer cheques in September/October.

There was rampant inflation, which rose to 599% by year-end leading to massive erosion of disposable incomes, and there was a depreciating currency, which forced prices up for all imported goods and services resulting in replacement costing in most industries.

High interest rates towards the end of the year also threatened the viability of many borrowed entities.

Mkushi said a difficult labour relations environment that culminated in strike action within the major centres in the last half of the year had also worsened last year’s operating environment.

During the year under review prominent lawyer Canaan Dube joined the Edgar’s board as a non executive director.

Dube is a partner in Dube, Manikai and Hwacha law firm and is director and chairman of several companies and professional organisations.

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