November 10, 2014
Lewis Group, which last week announced the planned acquisition of Beares, continued to be impacted by the slowdown in the furniture retail sector in the six months to September 2014 with headline earnings declining 11.3%.
Despite the lower earnings, the interim dividend has been maintained at 215 cents per share, as the board remain confident in the business model.
Chief executive officer, Johan Enslin, said the trading environment remains extremely challenging, with the group’s middle to lower income target market under continued pressure. “However, the results show initial signs of a stabilising credit environment with debtor cost growth slowing.”
Enslin said management is encouraged by the improving collection trend as the increase in debtor costs for the six months slowed to 27% from the 30% reported for the four months ended July 2014. “This reflects the dual impact of a more stable labour market following the settlement of the mining strikes and our improved collections productivity at stores.”
Debtor costs as a percentage of net debtors moved from 5.3% to 6.4%.
The credit application decline rate increased from 39% to 41%, “demonstrating the high levels of indebtedness in the target market”.
“Trading conditions in August and September proved particularly difficult owing to aggressive discounting by competitors ahead of store closures. This resulted in sales for the half year declining by 3.5% to R1.13 billion. Revenue for the period increased by 1.6% supported by increased financial services income,” he said.
Lewis reached the 500 store mark following the opening of nine new outlets during the period, bringing the group’s store base to 642 at the end of September.
Commenting on the proposed acquisition of Beares, Enslin said negotiations with the business rescue practitioners are progressing well.
In terms of the proposed agreement, the group will acquire the Beares brand and 63 of the existing Beares stores in South Africa. The purchase price is R40 million, with stock to a maximum value of R50 million. Approval from the competition authorities is expected to be finalised by 17 November 2014.
“Beares is a scalable brand with exciting medium-term expansion potential. The acquisition will enable the group to attract new customers in higher LSM markets where we currently have limited exposure,” said Enslin.
The Beares chain will be integrated into the group’s business model. Management plans to retain the Beares brand and incorporate the My Home chain into the Beares business.
On the outlook for the rest of the financial year, Enslin said retail trading conditions will remain challenging but he expects disruptive competitor activity to decline as stores are closed.
New merchandise ranges have been launched in stores ahead of the festive season trading period and will be supported by strong marketing campaigns.
“The integration of the Beares business into the group’s store, merchandise, supply chain and credit operations will be a priority in the months ahead,” he said.
Despite the adverse trading conditions the group continues to invest for growth and is on track to open the targeted 20 Lewis stores in the 2015 financial year.
Issued by Tier 1 Investor Relations on behalf of Lewis Group
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