Lewis Group today reported an 11% increase in headline earnings to R372 million for the six months ended September 2012 as trading conditions in the furniture retail sector remained challenging.
The interim dividend has been increased by 23.3% to 212 cents per share.
Chief executive, Johan Enslin, said merchandise sales have shown an improving growth trend. “Our sales increased well ahead of selling price inflation, growing by 6.4% for the period compared to growth of 3.3% for the previous financial year.”
Merchandise sales in the flagship Lewis brand, which accounts for 83% of group sales, increased by 6.1%. Best Home and Electric sales grew by 8.5% and My Home by 6.8%.
Thirteen new stores were opened in the past six months to bring the store base to 610, including 57 outside of South Africa.
Enslin said the continued focus on attracting credit customers through exclusive merchandise offerings and targeted customer promotions resulted in credit sales increasing from 73.2% to 75.2% of total sales. Credit sales for the period increased by 9.5% while cash sales declined by 1.4%, confirming the appeal of the group’s credit offering, he said.
The group’s gross profit margin at 37.7% (2012: 38.5%) is well within management’s medium-term target range of 36% to 38%.
“The overall quality of our debtors’ book has remained stable through an ongoing focus on tight credit granting and collections strategies. This has contributed to debtor costs declining by 2.2%, with debtor costs as a percentage of net debtors reducing from 5.1% to 4.6%,” he said.
The debtors’ book increased by 9% mainly as a result of the average term of new credit contracts increasing from 28 months to 32 months. This is in line with the group’s strategy of offering longer term deals on new contracts to good paying customers.
On the outlook for the remainder of the financial year, Enslin said trading conditions are expected to be challenging and the group will continue to focus on cost control and debtor costs in this low inflationary environment.
“New merchandise ranges have been introduced and stores are well stocked in preparation for the Christmas trading period. Strong marketing and promotional campaigns have been developed to attract credit customers and drive sales growth in the current competitive environment,” he said.
The group is on track to meet its store opening target of 20 to 25 stores for the financial year.
Furniture retailer Lewis Group said on Friday that sales for the four months to the end of July increased by 5% from the same period a year ago.
“Trading in April was challenging mainly as a result of the Easter holiday period. However, sales improved steadily from May onwards, with sales for June and July showing an increase of 6% for the two months,” CEO Johan Enslin said.
Furniture retailer Lewis Group’s strategy to open smaller-format stores in high-density trading areas is paying off by generating sales on a par with bigger stores, but at significantly lower cost.
This, along with new merchandise, better credit sales and higher collections, helped the group perform well in the year to March.
Forty new stores were opened in the year, increasing its store base to 582. This included 21 Lewis stores, of which 17 were smaller formats. In the current year 25 small Lewis stores will be opened out of a total of 40 new stores.
Johan Enslin, the chief executive of Lewis Group, said yesterday that the smaller stores, which were launched three years ago, cut manpower in half, but their sales compared favourably with big stores.
The small stores have a floor area of about 250m2 compared with the larger format’s 400m2 and they stock fewer lines, with the balance displayed in store through an online catalogue.
The group’s strong performance was also attributed to the introduction of new ranges twice a year as opposed to once a year previously. Merchandise sales rose by 12 percent to R2.3 billion and revenue increased 11.4 percent to R4.6bn.
Group headline earnings a share increased 21.6 percent to R7.81. Credit sales as a percentage of total sales grew from 68.5 percent to 71.4 percent.
Furniture and appliance sales increased by 12.1 percent and electronic goods sales by 11.9 percent. Merchandise sales in the flagship Lewis brand, which comprise 84 percent of total sales, rose by 12.6 percent. Best Home and Electric improved sales by 17.9 percent.
The shares rose 0.54 percent to R77.01 on the JSE yesterday.
FURNITURE retailer Lewis says it plans to expand its existing 582 stores to 700, as it focuses on smaller-format stores to boost margins.
The owner of the Lewis and the Best Home & Electric brands planned to build on the 40 stores it opened in the year to March — almost half of which were in the smaller format — as it increased the use of electronic catalogues that enabled stores to hold less stock, CEO Johan Enslin said yesterday.
Increasing its number of stores from 582 to 700 by 2013 is part of a strategy that, along with changing stock more frequently, Mr Enslin hopes will retain the loyalty of his customer base of lower-middle- income public servants — benefiting from above-inflation wage increases — and prevent them going to rivals such as JD Group .
If successful, the focus on smaller stores will help Mr Enslin achieve his ambition of raising his company’s operating profit margin to 26% from the existing 23%.
“They have tested electronic catalogues, it seems to be going well,” said Warren Buys, an equity analyst at Cadiz Holdings in Cape Town. “You don’t need the same amount of space inside the store.
“People like to touch, sit on furniture, but (the company is) able to carry less stock and increase margins substantially. The results of the smaller stores have been good.”
A focus on smaller stores of 250m² in size, rather than the larger traditional format of between 400m² and 450m² , allows Lewis to locate stores in value marts — smaller retail centres — such as in Orange Farm and Vosloorus on the outskirts of Johannesburg, that will not support a larger store. “It also gives us the opportunity to look in places like Soweto, particularly Maponya (Mall),” Mr Enslin said.
The rising fortunes of Lewis’s customers saw the company report a 21% jump in pretax profit to R1,04bn for the year to March.
Revenue rose 11,4% to R4,58bn as consumer appetite for credit grew. Sales on credit rose to 71,4% of the total from 68,5% a year earlier.
Debtor costs fell to 10,2% from 10,9% of the total debtors’ book, as collections improved with customers’ recovering fortunes. The percentage of customers in the “satisfactory paid” category rose to 74,5% from 72,7% a year earlier.
The growth, which Mr Enslin called a “solid rebound”, came as the company in October for the first time introduced a second product range for the year, whereas it had only previously had one new range a year. It was such a success the company will do it again this year.
It released its first new range last week and has pencilled the second in for October, but may do so a month earlier. “It’s furniture that attracts customers, as opposed to favourable credit rates,” Mr Enslin said.
“The challenge is to stay relevant. We are watching our competitors’ every move. If we need to bring it forward, we will.”
JOHANNESBURG (Reuters) – South African furniture retailer Lewis plans to increase store numbers by a fifth in the next two to three years in a bet on recovery in Africa’s top economy.
But CEO John Elsin told Reuters expansion into fast-growing sub-Saharan Africa was on hold, highlighting the difficulty for credit retailers in areas with weak financial infrastructure.
“We believe we must saturate the local market,” he said in a telephone interview.
Lewis, which runs around 580 stores targeting the low end of the market, extends credit to customers who cannot pay up front.
“We have no plans to expand into Africa … there are no reliable credit bureaus operating in most parts of Africa.”
Cash retailers such as Massmart, currently the target of a takeover bid from Wal-Mart, have been ramping up their expansion into Africa while credit retailers such Lewis and JD Group have not been able to follow.
HIGHER EARNINGS
Lewis reported a 21 percent rise in diluted headline earnings per share in the year to end-March, to 772.2 cents, beating an estimate of 756.4 cents by eight analysts polled by Thomson Reuters.
Results were helped by the stronger rand, which drives down the price of imports, and by fewer customers defaulting on debts thanks to the improving economy.
“A highlight for me was the gross margin improvement, it seems they were able to source products a lot cheaper and that should be a function of the stronger rand,” said Danie Pretorius, an analyst at RMB Morgan Stanley.
Lewis lifted its dividend payout for the first time in two years, by 12 percent to 363 cents.
Shares in Lewis, which have dropped nearly 6 percent so far this year, were up 0.7 percent to 77.14 rand by 1029 GMT, outperforming a 1.6 percent fall in the All-share index
Johannesburg – Furniture retailer Lewis Group [JSE:LEW] reported a forecast-beating 20.6% rise in full-year profit, helped by a decline in debtor costs as consumer spending slowly recovers.
Lewis, whose stores of the same name caters for the low end of the furniture market, said on Monday diluted headline earnings per share (EPS) totalled 772.2c in the year to end-March compared with 640.2c a year earlier.
A Reuters poll of eight analysts had estimated diluted headline EPS would be 756.4c.
Headline earnings are the main profit measure in SA and strip out certain one-off items.
Lewis, which lifted its final dividend by 13.5% to 207c, said revenue rose 12% to R4.6bn during the period.
“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,” said Lewis’s chief executive, Johan Enslin.
Shares in the company have dropped nearly 6% so far this year, lagging behind the all-share index which is little changed.
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.
Johannesburg, May 23 (I-Net Bridge) – The improved economic health of its customers had led to an increase in sales and credit collections for furniture retailer Lewis Group (LEW), said CE Johan Enslin on Monday.
Lewis Group reported an increase in earnings of 21.6% to 781 cents a share, while merchandise sales increased by 12% to 2.3 billion rand and revenue rose by 11.4% to 4.6 billion rand.
“We can only speak for ourselves, but the furniture sector definitely seems to be out of the woods,” he told I-Net Bridge/BusinessLIVE.
Coming off a very low base after the economic downturn, a turn in the cycle has been a long time coming for furniture retailers, who bore the brunt of the recession because of debt collection difficulties and a large in sales of durable goods.
Rival JD Group (JDG) last week reported revenue growth of 9% to 7.5 billion rand and a profit surge of 44% to 231 million rand.
During the first quarter of 2011, durable and semi-durable goods retailers have seen sustained growth over the same period last year as lower interest rates and a less guarded approach to spending has seen consumers switch gears from the “essential” spending on food and necessities to big-ticket items like furniture and electronics.
“The big trend over Christmas and during the past couple of months was a nice uptick in panel TV sales – LCDs and Plasmas have really taken off. The strength of the rand is assisting consumers in a big way,” Enslin said.
He added that the affordability of TVs had even benefited customers in living standard measures (LSM) 4-7, the lower and lower-middle income markets.
Lewis Group’s 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.
“We import 20% of our furniture on a direct basis, out of countries like China and Malaysia, South America. The balance of our furniture gets sourced locally. Our strategy is to deal with smaller local suppliers – that can ensure us exclusivity of product,” Enslin said.
With 40 new stores opened in the period under review, the group’s home-grown expansion plans are well underway.
“Our three-year strategy is to increase our store base to 700 stores – we are now on 582, we believe we can get there,” Enslin added.
Furniture retailer Lewis Group is benefiting from improved trading conditions and debtor collections, despite continued high levels of unemployment.
The group said on Friday in a trading update that sales continued to improve since its interim reporting period, with merchandise sales for the quarter to December increasing an annual 13 percent. Merchandise sales for the nine months to December rose 12 percent.
The group’s retail brands are Lewis, Best Home and Electric, and My Home.
Debtor collections for the quarter to December increased 14.7 percent, with debtor costs for the nine months to December reflecting a satisfactory improvement, the company said.
Kagiso Asset Management head of research Abdul Davids said Lewis’s numbers were in line with expectations as the firm had been more resilient than JD Group.
Lewis has maintained that its key headwind was unemployment given its exposure to lower-income earners. Despite heavy job losses in this category it has performed well.
However, the impact of job losses might still have a lag effect on Lewis, Davids said.
Competitor JD Group has greater exposure to credit and in the last 18 months has written off a lot of bad debt, which impacted earnings. But its performance this year would improve due to the non-recurring bad debt, Davids said.
“If you include operational growth and expansion JD Group’s earnings should improve substantially.”
JD Group in November reported a 3 percent increase in sales in the year to August, but said there had been significant improvement in the second half of the financial year with sales up 6.7 percent.
In November Lewis reported that in the six months to September merchandise sales grew by 11.2 percent.
On Friday Lewis shares closed 3.8 percent higher at R75.20, while JD Group rose 2.4 percent to close at R52.84.
FURNITURE retailer Lewis said on Friday its merchandise sales for the third quarter ended December had increased 13%, as the company continued to benefit from its policy of working to “re-serve” customers.
Merchandise sales for the nine months to December last year were also strong, reflecting a cumulative increase of 12%.
“Lewis has done well to keep its customers by using its re-serve policy. This has given it an edge over its competitors such as JD Group and Ellerines,” Shanay Narsi, an equity analyst at BoE Private Clients, said.
Part of the re-serve policy sees Lewis granting credit at a centralised level but collecting credit payments at store level, which created strong personal relationships, Mr Narsi said.
JD Group collects credit payments at a centralised level.
But Mr Narsi admitted that even though Lewis was happier than JD Group had been recently to extend credit to customers, this could obviously be risky.
JD Group had written off a large amount of bad debts during the past couple of years, prompting it to act cautiously, he said.
Meanwhile, Lewis had continued to benefit from the lower-end retail markets, trading large quantities in rural areas.
Mr Narsi said Lewis had taken steps to keep workers, even when they worked fewer hours, on their credit books and also extended loan periods.
“These moves have not harmed Lewis. The sales growth figures suggest accelerated trading. This is a good update,” Mr Narsi said.
Lewis also said its debtor collections had continued for last year’s fourth quarter, “resulting in an increase of 14,7% in collection levels, with debtors’ costs for the nine months reflecting a satisfactory improvement”.
Lewis’s share price had increased 3,53% by 3pm on Friday, in 677 deals involving 333666 shares.
Credit retailers including Lewis, Truworths and Foschini have outdone major cash retailers in terms of sales performance in the latter half of last year.
Truworths group sales for the six months to December last year rose 15,3%, while its growth for stores open at least a year, or same-store growth, was 10,6%. Foschini’s sales grew 22,5%, while same-store growth was 17,2%.
Analysts such as Syd Vianello of Nedbank Capital are expecting major credit retailer Edgars to release impressive results sometime next month.
Lewis’s financial results for the year to March this year are expected to be released on or about May 23, the furniture retailer said.
