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Lewis Group revenue up 8% as dividend maintained

November 9, 2009

Furniture retailer Lewis Group has continued to show an improving trend in revenue growth in the six months to end September 2009, with revenue increasing 7.9% to R1.95 billion and merchandise sales up 6.8% to R951 million.

The group has maintained its interim dividend at 144 cents per share.

Chief executive, Johan Enslin, said the credit environment remained challenging over the period, with increasing unemployment, retrenchments and ‘short time’ impacting disposable income levels. This has resulted in higher debtor costs for the group.

“While operating profit increased by 4.3%, the 22% strengthening in the value of the Rand resulted in exchange losses on forward cover contracts of R30 million. This accounted for the 3.9% decline in headline earnings per share to 290.5 cents (2009: 302.2 cents).”

He said revenue growth had shown consistent improvement over the past 18 months, growing by 5.0%, 6.6% and 7.9% over the past three six-month reporting periods.

Furniture and appliance sales, which contribute 80% of group sales, increased by 7.8% for the six months, while sales of the more discretionary electronic merchandise grew by 2.8%. Enslin said Lewis continues to differentiate its offering with exclusive ranges which offer value-for-money to consumers in the current tough environment, with several new furniture ranges being successfully introduced in recent months.

The flagship Lewis brand, accounting for 85% of merchandise sales, grew revenue by 7.9%. Best Home and Electric lifted sales by 10.2% and Lifestyle Living by 0.8%.

Enslin, who was appointed chief executive last month, said gross margin improved from 33.1% to 33.5% as a result of innovative merchandising strategies.

The group’s operating margin at 21.8% (2009: 22.6%) came under pressure from increased debtor costs, but remains the highest in the furniture industry.

Enslin said the financial stress on consumers had resulted in debtor costs increasing from 4.5% to 5.0% of net debtors in the tightening credit collections environment. The doubtful debt provision for the first half of the year has increased from 15.5% to 17.9%.

“Credit scorecards are regularly reviewed to maintain acceptable credit risk levels. The credit application decline rate is now 27.4% compared to 24.5% in the corresponding period last year, highlighting the current levels of consumer indebtedness,” he said.

The group opened five Lewis stores and three Best Home and Electric outlets in the past six months. The small store model adopted by Lewis is proving successful and the five stores in this format are all performing ahead of expectations.

A further seven to ten stores are planned for the second half, with four small format Lewis stores scheduled to be opened in November.

On the outlook for the group, Enslin said the festive season trading period will be strongly supported by merchandise and promotional campaigns to maximise sales opportunities.


Issued by Tier 1 Investor Relations on behalf of Lewis Group

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