November 30, 2023
Cape Town – Lewis Group today reported strong credit sales growth and a resilient debtors’ book performance for the six months to September 2023, while the group’s cash sales reflect the pressure on cash-strapped South African consumers.
Earnings were 6.2% lower at R195 million while earnings per share increased by 2.6% to 355 cents per share, supported by the positive leverage effect from the group’s share repurchase programme. Headline earnings decreased by 14.6% and headline earnings per share decreased by 6.6% to 372 cents.
The interim dividend has been increased by 2.6% to 200 cents per share.
The group has returned R1.8 billion to shareholders since the start of its buy-back programme, repurchasing 45.8 million shares. In the first half of the year, the group repurchased 3.1 million shares at a cost of R124 million.
Merchandise sales grew by 4.8% to R2.2 billion. After a difficult first quarter of the financial year, sales benefited from new product ranges and strong advertising campaigns to increase by 8.5% for the second quarter. The group’s total revenue, comprising merchandise sales and other revenue, increased by 8.3% to R3.8 billion.
CEO Johan Enslin said the strong credit sales growth trend of the past two years continued as credit sales increased by 19.5% across all the group’s traditional brands, contributing to the debtors’ book growing by 10.8%.
“Despite the economic pressure facing consumers, the quality of the group’s debtors’ portfolio has been sustained. The percentage of satisfactory paid customers increased to 79.9% from 78.8% in the prior period while collection rates were stable at 80.9% compared to 81.7% last year,” he said.
The pressure on disposable income from higher fuel, energy, food and borrowing costs is reflected in the continued slowdown in the group’s cash sales. This adversely impacted the performance of UFO, the group’s cash retail brand, with sales declining by 14.3%.
Enslin said management remains focused on improving UFO’s performance through exclusive merchandise offerings and enhanced social media marketing strategies. “As part of the rightsizing of UFO we implemented extensive cost saving measures which resulted in the business reporting an operating profit for the half year,” he said.
The group’s gross profit margin strengthened by 140 basis points to 40.7%, within the group’s target range of 40% – 42%. Enslin said the margin benefited from the 23% reduction in inventory as management reduced stock closer to historic levels.
Management took advantage of opportunities to acquire well located trading space to accelerate its store expansion, opening a net 28 new stores which included five stores outside of South Africa. The new stores are trading well and a further 10 stores are planned for the second half of the year.
The group’s total store footprint of 868 includes 138 stores in neighbouring Namibia, Botswana, Lesotho and Eswatini. Sales in these stores, which represent 15.9% of the store base, accounted for 18.7% of the group’s sales.
On the outlook for the second half of the financial year, Enslin said consumer spending will remain depressed in the months ahead. “We expect the current demand for credit to continue and will capitalise on the strength of our loyal customer base and differentiated merchandise offering to gain further market share,” he said.
Load shedding and congestion at the local ports are likely to continue to negatively impact economic growth, he said.
Enslin said the group has proven its resilience through previous economic downturns and management is confident in the group’s medium-term prospects.
Ends
Issued by Tier 1 Investor Relations on behalf of Lewis Group
Enquiries Graeme Lillie Tier 1 Investor Relations 082 468 1507
