Industry :: p9
Many local suppliers of clothing and footwear brands got their first taste of the concept of business rescue from Stuttafords — and didn’t like it at all. Luckily, Edgars seems to be back in business. Words: Trudi du Toit
provided they continued to supply stock; • Vestacor, headed by current Stuttafords CEO Robert Amoils, would have contributed R10.3-m for a 56.12% stake. Some industry members would remember Vestacor as the former Fashaf and Moresport owners; • The shareholding of other shareholders (Including Ellerines) would have been diluted to below 15% in total, or 1% or less each. • The management of Stuttafords International Fashion Company would have 20.08% shareholding and Stuttafords Stores 13.9% The changing-of-the-guard differences between the two proposals elicited the cynical remark from a creditor that “it is mainly about a spat between shareholders — everybody knows there has been a fall-out between the Ellerine and Rubenstein families.” Which is costing the industry dearly.
In trouble before For business rescue to succeed, there must be a reasonable expectation that the financially distressed business would again trade profitably under careful management to reorganise and restructure it until it overcomes the special circumstances that caused the financial difficulties, attorneys Lawrence Whittaker and Henry Stubbings of Herold Gie Attorneys explain on their website. “One of the key criteria to qualify for protection is that it can be proven that the company has a fair chance of recovery,” says Whittaker. Even then, there is international evidence that only 5% of business rescue cases are successful, he writes. In South Africa studies are still being conducted, but the success rate is estimated to be 10-12%. Stuttafords has been struggling for at least thirteen years under various owners and managers and it would therefore be difficult to identify the current special circumstances. After the management buyout of 2004, high debt and inadequate funding had placed it on a path to commercial insolvency. In 2006 a consortium of shareholders came to the rescue. They were the Ellerine Brothers (26.4% ), Vestacor under CEO Gerald Rubenstein (20.1%) plus various smaller shareholders, including
Edcon back on track? Edcon’s dEBT restructuring has been finalised, the Competition Commission approved the acquisition by Parentco — formed by some of the group’s major creditors who were offered equity instead of full debt repayment — a new board has been appointed, and all seems to be in place to get the retail group back to profitability. Unfortunately, customers didn’t exactly respond to the retailer’s improved status by crowding the Edgars aisles over Christmas. The Edgars division’s sales for the third quarter of financial year 2017 (October to December 2016) were 2.5% down to R3.47bn, compared to the third quarter of 2016. October was the worst, with sales dropping 8.3%, but improving in November and December to about the same levels as the same period in 2015. Compared to the first two quarters, apparel sales also improved. Despite initiatives to improve credit sales, Edgars credit sales dropped by 10.2% in the third quarter, but cash sales increased 4.8%. Same store sales were 3.1% down when
other members of the Rubenstein family. The department store took a further knock in 2008 when former CEO Marco Cicoria decided to supplement their in-house brands by directly importing expensive international brands like Gap, Ted Baker, Banana Republic, Tommy Hilfiger, etc. This strategy also proved costly for fellow department store Edgars — especially after the Rand came tumbling down and credit controls were tightened. More recently, by financial year end in June 2015, Stuttafords reported a R59.8-m loss, which it attributed to operating expenses and finance costs. In the following year, ending June 2016, their pre-tax loss was R17.5-m, despite making a gross profit of R299-m on revenue of R753-m. This was due to high operating expenses (R276m), finance cost (R13.8-m) and depreciation (R28.4-m) they reported.
compared to the third quarter of 2016. Profit margins dropped due to a focus on competitive entry price points and discounts offered to customers in the form of a gift card — but by the end of December 2016 only about half of the discount cost had materialised in the form of sales. The Edcon Group, however, estimated that during the next quarter, which ended 25 March 2017, sales would have been slightly better than guidance set in management’s internal planning budget and they are expected to improve even more during the next quarter. Stock clearances at Edgars are complete, and they have worked their way through 80% of the aging inventory, CEO Bernie Brookes reported. Remaining challenges are increased competition and tighter restrictions on granting credit. The new board members, under chairmanship of De Beers CEO Gareth Penny, further brings considerable management and retail expertise to the group.
Four months later Stuttafords was placed under supervision of the BRPs. For the next three months, over the 2016-17 festive season, all stores traded profitably, recording sales of R176.9-m, which is a gross profit of R82.8-m, they reported. When applying for business rescue, CEO Amoils said the turnaround strategy would include growing house-brands to 10-15% of sales and only concentrating on own international brand imports that are the most profitable like Ted Baker, Tommy Hilfiger and Banana Republic. They were also planning on closing some non-performing stores and no longer invest in shopping mall rejuvenations. After the adoption of the Ellerines proposal, this becomes moot. It now remains to be seen what the turnaround strategy of the new manager or buyer will be.
2017 Q2 :: Sports Trader