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Lewis Group earnings up 11% as sales growth improves

November 12, 2012

Lewis Group today reported an 11% increase in headline earnings to R372 million for the six months ended September 2012 as trading conditions in the furniture retail sector remained challenging.

The interim dividend has been increased by 23.3% to 212 cents per share.

Chief executive, Johan Enslin, said merchandise sales have shown an improving growth trend. “Our sales increased well ahead of selling price inflation, growing by 6.4% for the period compared to growth of 3.3% for the previous financial year.”

Merchandise sales in the flagship Lewis brand, which accounts for 83% of group sales, increased by 6.1%. Best Home and Electric sales grew by 8.5% and My Home by 6.8%.

Thirteen new stores were opened in the past six months to bring the store base to 610, including 57 outside of South Africa.

Enslin said the continued focus on attracting credit customers through exclusive merchandise offerings and targeted customer promotions resulted in credit sales increasing from 73.2% to 75.2% of total sales. Credit sales for the period increased by 9.5% while cash sales declined by 1.4%, confirming the appeal of the group’s credit offering, he said.

The group’s gross profit margin at 37.7% (2012: 38.5%) is well within management’s medium-term target range of 36% to 38%.

“The overall quality of our debtors’ book has remained stable through an ongoing focus on tight credit granting and collections strategies. This has contributed to debtor costs declining by 2.2%, with debtor costs as a percentage of net debtors reducing from 5.1% to 4.6%,” he said.

The debtors’ book increased by 9% mainly as a result of the average term of new credit contracts increasing from 28 months to 32 months. This is in line with the group’s strategy of offering longer term deals on new contracts to good paying customers.

On the outlook for the remainder of the financial year, Enslin said trading conditions are expected to be challenging and the group will continue to focus on cost control and debtor costs in this low inflationary environment.

“New merchandise ranges have been introduced and stores are well stocked in preparation for the Christmas trading period. Strong marketing and promotional campaigns have been developed to attract credit customers and drive sales growth in the current competitive environment,” he said.

The group is on track to meet its store opening target of 20 to 25 stores for the financial year.