HARARE – Edgars Stores Limited delivered a strong rebound in profitability for the financial year ended 4 January 2026, with profit after tax rising 139% to US$1.95 million, underscoring solid operational performance despite persistent pressure from elevated funding costs.
According to analysis by Equity Axis, the clothing retailer posted revenue of US$41.3 million, up 12% year-on-year, translating to a net margin of 4.7%. Earnings per share improved to 0.34 US cents from 0.14 US cents in the prior year.
While the headline growth reflects genuine recovery, underlying financial dynamics reveal a business constrained more by the cost of capital than by trading performance.
Strong Trading Momentum
Edgars’ core retail operations remained robust during the period. Merchandise revenue reached US$34.1 million, generating a gross profit of US$17.1 million and a healthy gross margin of 50.3%. Unit sales rose 19.3% to 2.38 million, with both the Edgars and Jet chains recording double-digit turnover growth of 10.2%.
The group’s vertically integrated manufacturing arm, Carousel, continues to support margins, although it remains loss-making on a standalone basis.
In addition to retail income, Edgars generated US$7.1 million from financial services, primarily through its debtor book and microfinance operations. This brought total income before operating costs to approximately US$24.4 million, highlighting the growing importance of credit-driven sales in a liquidity-constrained consumer market.
Credit Model Drives Revenue—but at a Cost
The company’s hybrid retail-credit model remains central to its operations. With a combined debtors and microfinance book of roughly US$13.8 million, Edgars effectively finances a significant portion of its sales.
However, this model comes with a steep cost. To sustain the credit book, the group relied on US$9.52 million in borrowings, with US dollar lending rates ranging between 17% and 20%. When lease-related interest is included, total finance costs reached US$3.04 million, consuming 57.3% of operating profit.
Equity Axis noted that while the credit portfolio generates strong yields—estimated at around 55%—the overall cost of capital, amplified by leverage and additional financing mechanisms, significantly erodes profitability.
The introduction of supplier creditor financing in late 2025, priced at approximately 20%, has added another layer of short-term obligations, further tightening liquidity.
Liquidity and Balance Sheet Pressures
Edgars ended the year with US$22.5 million in current liabilities against US$29.6 million in current assets, resulting in a current ratio of 1.32. However, short-term borrowings and overdrafts of US$9.48 million accounted for a substantial share of these liabilities, indicating increased liquidity pressure.
Total equity stood at US$15.1 million against assets of US$41.0 million, leaving the business significantly leveraged, with 63% of its asset base funded by liabilities.
Segment Performance Mixed
Retail operations remained the primary earnings driver. The Edgars and Jet segments collectively generated nearly US$2.0 million in pre-tax profit, outperforming the financial services division after funding costs.
By contrast, Carousel Manufacturing posted a pre-tax loss of US$495,000, despite increased production volumes and ongoing capital investment aimed at improving future efficiency.
Growth Outlook Constrained by Capital Structure
Despite operational improvements—including reduced credit loss provisions and strong sales growth—analysts caution that Edgars is approaching the limits of its current capital structure.
At present levels, the company’s ability to significantly expand profitability is constrained unless borrowing costs decline or leverage is reduced. Achieving a meaningful increase in earnings would likely require either a substantial drop in interest rates or a strategic shift in funding—both of which remain uncertain in Zimbabwe’s current monetary environment.
Equity Axis concluded that Edgars is a well-managed and improving business operationally, but one whose earnings potential remains capped by structurally high funding costs inherent in its credit-driven model.
