Edgars Q1 2024: Higher quality, lower costs improve margins

KINGSTONE ZIMUNYA

HARARE – For the first quarter of 2024, VFEX-listed clothing giant Edgars Stores Limited managed to scrap an increase in margin of 1%, despite declining sales brought about by a difficult operating environment. 

The shop entrance at the launch of the Edgars at Ascot Shopping Mall in Bulawayo, March 2024. Despite a difficult operating environment, Edgars continues on a steady recovery path.

Presenting the trading update for the quarter ended 7 April 2024, Edgars Group CEO Mr Sevious Mushosho noted declining disposable income and reduced spending by consumers brought about by a range of factors. 

The economic impact of the El-Nino induced drought, coupled with the economic uncertainty brought about by the depreciation in the Zimbabwean dollar (ZWL) and the subsequent introduction of the Zimbabwe Gold (ZiG) currency; were cited as the major factors that made for a difficult first quarter. 

Despite certain fiscal policies affecting aggregate demand, the Group extended their appreciation to Government for enacting policies that bolstered local manufacturing. 

"The Group is encouraged to note efforts by Government in supporting local manufacturing industries and its actions against smuggled new and second-hand clothes," reads part of the statement. 

The Group's traded units declined 18% from 552 ,771 last year to 455,010 this year. However, sales only dropped by 12%, while the margin rose slightly by 1%.  

This was attributed to the Group's increased control of its supply chain, through partnering local suppliers and increasing production at its Carousel factory in Bulawayo.

This allowed the Group to control the quality of merchandise supplied and ultimately lower the cost of production.

For the first quarter, the focus was on the Group's flagship chain, Edgars, which suffered a 12% knockdown in sales volumes to 203,007 units from 231,614 units last year. The reduction in volumes was offset by the Group's prudent procurement strategy, as the statement revealed; 

"Sales were down by a mere 2% while the margin was up 5% year on year because of a deliberate strategy to procure high quality merchandise at a lower cost and sell at full margin at competitive prices with minimum markdown."

The Jet chain experienced a 22% fall in traded units to 252,003 units from last year’s 321,157 units, the reason being low opening stocks in ladieswear, footwear and menswear in the first two months of the quarter. 

During the first quarter, the Edgars chain's credit to cash sales ratio was 64:36, compared to 2023's 65:35; while for Jet it was 63:37 (2023: 60:40). The Group's debtors book declined from $13,2 mln Dec 23 to $12.3 mln March 24, as collections were higher than the growth in credit sales. 

The outstanding cog in the Edgars machine continues to be its in-house manufacturing unit, Carousel Manufacturing, which enjoyed a 204% boost in units sold to 80,244 this year; from 26,437 achieved last year. 

Carousel's increased capacity is thanks to a US$1m acquisition of new machines, as part of a retooling exercise meant to modernize its manufacturing capabilities to support the retail chains. As a result, the Group's locally produced merchandise rose to 70%, compared to 50% in the previous year. 

The Group's cost of sales declined 23% due to the increased production efficiencies brought about by Carousel's retooling exercise. 

Going forward, Carousel expects to increase production volumes from 45,000 per month to 100,000 per month; which many enable the Unit to resume exports into South Africa before the end of the current year. 

Concluding the update, Mr Mushosho revealed that plans for the reintroduction of Express Stores are at an advanced stage. The Unit will focus on the lower-income segment of the market, which is currently dominated by the second hand clothing market.

Express Stores aims to grab a chunk of the market by selling brand new clothes at the same low prices that are offered by second hand clothing retailers. 

Ten new Express Stores locations are earmarked for launch during the second half of the year. 

Mr Mushosho also announced plans to open a new Edgars store and four new Jet stores during the second half of the year.

As at close of business on July 11, Edgars Ltd [EDGR.vx] was trading at US$0.018 per share on the Victoria Falls Stock Exchange.