Lewis shows early signs of recovery in tough markets
November 13, 2017
Cape Town – Economic conditions impacting the country’s lower to middle income market continued to weigh on Lewis Group’s performance for the six months to September 2017 as headline earnings declined from R173 million to R144 million with headline earnings per share 15.8% lower at 163.9 cents.
However, the group’s results show an improving sales growth trend, stronger gross profit margin, tight expense control and lower debtor costs.
The interim dividend has been maintained at 100 cents per share.
The group continues to generate strong cash flows, with cash of R685 million at end September. Over the past 18 months borrowings of R1.4 billion have been repaid and the group’s balance sheet is ungeared, compared to gearing of 18.8% in the previous year.
Chief executive officer Johan Enslin said trading conditions remain extremely difficult. “Our core lower to middle income customer base continues to be impacted by increasing living costs, high unemployment and limited prospects in the current low growth environment in the country. In addition, credit sales continue to be restricted by the National Credit Regulator’s affordability assessment regulations,” he said.
Merchandise sales increased by 5% mainly as a result of new merchandise ranges and increased promotional activity across the three trading brands Lewis, Beares and Best Home and Electric. Comparable stores sales grew by 7.3%.
The group has 744 stores, including 110 outside South Africa which contributed 24% of merchandise sales.
The group’s gross profit margin strengthened by 40 basis points to 40.9%. The margin benefited from more competitive pricing on locally sourced product and margin expansion in the furniture categories, he said.
Debtor costs declined by 11.5% while collection rates improved from 74.6% in the first half of the 2017 financial year to 76.2% in the current period.
The group recently announced the acquisition of the luxury household furniture retailer United Furniture Outlets (UFO) for R320 million, subject to competition approval. UFO is a cash retailer targeting the higher income market and has a footprint of 30 stores.
“The acquisition of UFO aligns with our strategy of diversifying and gaining access to higher income customers and improving our cash-to-credit sales mix. We believe the business is scalable with the potential to expand its store footprint across South Africa and into neighbouring countries.”
“Following the acquisition of UFO, the group is well positioned to service customers across all market segments,” he said.
On the outlook for the remainder of the financial year, Enslin said the trading environment is expected to remain challenging and the group continues to focus on driving sales growth, managing expenses and reducing debtor costs. “The important festive trading season will be supported by strong promotional activity and new merchandise ranges across our three brands,” he added.
Issued by Tier 1 Investor Relations on behalf of Lewis Group
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