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Lewis Group earnings up 22% on strong trading performance

May 23, 2011

Cape Town – Furniture retailer Lewis Group posted a strong trading performance for the financial year to March 2011 and increased headline earnings per share by 21.6% to 781 cents.

A final dividend of 207 cents per share was declared, bringing the total dividend for the year to 363 cents (2010: 323 cents).

Chief executive, Johan Enslin, said Lewis experienced steadily improving sales and credit collections as the economic health of customers continued to improve during the year. Merchandise sales increased by 12% to R2.3 billion and revenue rose by 11.4% to R4.6 billion.

Earnings growth was driven mainly by the improvement in the gross profit margin from 34.9% to 36.3% and the decline in debtor costs from 10.9% to 10.2%.

Enslin said the merchandise strategy of sourcing exclusive and differentiated furniture ranges was enhanced with a second launch of merchandise in October 2010 which contributed to the increase in the gross margin.

Furniture and appliance sales increased by 12.1% and electronic goods sales by 11.9%. Merchandise sales in the flagship Lewis brand, which comprise 84% of total sales, increased by 12.6% and Best Home and Electric improved sales by 17.9%.

Credit sales as a percentage of total sales grew from 68.5% in 2010 to 71.4% this year.

Operating profit margin increased to 23.0% (2010: 22.1%) which translated into a 16.0% growth in operating profit which reached the R1 billion mark.

Forty new stores were opened, bringing the store base to 582 at year end. This includes 21 Lewis, 15 Best Home and Electric and 4 My Home stores, with 17 of the new Lewis outlets being smaller format stores. A further 40 outlets are planned for the new financial year, with the focus on small stores with lower cost structures and higher sales densities.

Discussing the outlook for the year ahead, Enslin said there are encouraging signs of a sustainable improvement in spending in the Lewis target market.

“Consumer confidence is improving and demand for credit is growing, supported by higher real wage increases granted to the public sector and trade union groups, stabilising unemployment, continuing infrastructure spend and service delivery.”

However, he said the group remains cautious on the pace of the economic recovery “in an environment where job creation is key to sustained growth and consumers are experiencing increasing fuel, electricity and utility costs”, he said.