November 21, 2018
Cape Town – Lewis Group continued its turnaround performance in the six months to September 2018 as headline earnings per share increased by 10.7% to 180.8 cents, driven by strong merchandise sales growth and the early benefits of the group’s diversification strategy.
The interim dividend has been increased by 5% to 105 cents per share.
Merchandise sales were boosted by the recent acquisition of United Furniture Outlets (UFO) and increased by 25.9% to R1.6 billion. Excluding the sales from UFO, merchandise sales grew by 8.1%.
Chief executive officer Johan Enslin said UFO has performed well since being successfully integrated into the group and contributed sales of R230 million for the six months. UFO has enabled the group to access higher income customers and as a cash retailer has increased the group’s cash-to-credit sales mix.
Cash sales now account for 43% of total group sales compared to 31% in the prior period.
The group’s debtor costs continued to decline, reducing by 20.8% over the prior period. Collection rates improved from 76.2% to 77.2%, despite the deteriorating consumer environment. The level of satisfactory paying customers improved to 69.9% from 68.4% at the end of the 2018 financial year.
The group is highly cash generative, with cash and cash equivalents totalling R543 million at the end of September, while the balance sheet remains ungeared.
Enslin said the group’s strategy of diversifying across market segments and retail channels, which started with the acquisition of the Beares chain in 2015, has continued with the acquisition of UFO and the launch of omnichannel retailer INspire.
“We believe UFO is scalable with the potential to expand across South Africa and into neighbouring countries. Two stores were opened during the first half, another three stores opened in October and two more outlets are planned to open before December.”
INspire marks the group’s entry into the home shopping market with an extensive product offering across linen, bedding, tableware, cookware and small electrical appliances. The business is marketed through outbound call centres, agents and online shopping. “Our strategy is to attract customers in the LSM 4 – 8 categories to extend the group’s presence in urban areas,” said Enslin.
The group’s store base increased to 779 following the opening of 14 stores and closure of 8 stores during the six month period. The store base in the neighbouring countries of Botswana, Lesotho, Namibia and Swaziland increased by 6 to 116, including the opening of the first five Best Home and Electric stores in Namibia.
Discussing the outlook for the remainder of the financial year, Enslin said the current sales momentum is expected to be maintained, with UFO complementing the performance of the traditional retail brands.
He said the change in the affordability assessment regulations of the National Credit Act has enabled self-employed and informally employed individuals to again apply for credit.
“We expect this to improve the performance of our stores in rural areas which have been most affected by these restrictive regulations. While it will take time before many of these individuals re-enter the credit market, sales to this customer category are encouraging and early payment performance is satisfactory,” he added.
Issued by Tier 1 Investor Relations on behalf of Lewis Group
Enquiries: Graeme Lillie 082 468 1507