LEWIS Group declared a dividend of 200 cents despite its consumers facing tough financial pressure and after it managed to retain the quality of its book in the six months to September 30, its results showed yesterday.
The relatively strong results for the furniture, electronic goods, home appliance and housewares retail group in such a weak economy saw the share price ratchet up a sturdy 7.57% to R41 yesterday morning.
The pressure on consumer disposable income from higher fuel, energy, food and borrowing costs was reflected in the continued slowdown in the group’s cash sales, which also adversely impacted the performance of UFO, Lewis’s cash retail brand.
But a right sizing and cost cuts at UFO resulted in it reporting an operating profit for the half-year. Further exclusive merchandise offerings and improved social media marketing strategies were planned.
Group merchandise sales increased by 4.8% to R2.2 billion. Revenue increased 8.3% to R3.8bn. The gross profit margin increased by 140 basis points to 40.7%.
After growing by 1.1% in the first quarter of the 2024 financial year, new product ranges and advertising campaigns saw merchandise sales increase by 8.5% for the second quarter.
Merchandise sales in the traditional retail segment increased 7.3%, while sales in UFO declined by 14.3%. Comparable store sales grew by 1.9%.
“Credit sales continued to grow strongly across the traditional retail brands, which contributed to robust growth in the debtors’ book,” directors said.
The debtors’ book grew 10.8%. Satisfactorily paid accounts increased to 79.9% from 78.8%. Operating profit increased 7.5% to R309.3 million. Headline earnings a share decreased 6.6% to 372 cents.
Due to the growth in the debtors’ book, the debtors’ impairment provision increased by R147m. Total debtor costs increased by R192.1m and debtor costs as a percentage of debtors increased to 7% from 4.4%.
The strong credit sales growth trend of the past two years continued, with credit sales increasing by 19.5% and cash sales declining by 14.4%.
The contribution from credit sales increased to 64.4% of total merchandise sales from 56.5% in the previous half-year.
The group, however, said it maintained its strict credit granting criteria, with the application decline rate settling on 34.8% (H1 2023: 35.8%).
Sales in the stores outside South Africa, which represent 15.9% of the store base, increased 4.9% and accounted for 18.7% of group sales.
The group opened 29 new stores in the traditional retail segment, including five new stores outside of South Africa. The total store footprint of 868 includes 138 stores outside of South Africa.
Other revenue, consisting of interest income and ancillary services income as well as insurance revenue (measured in terms of IFRS 17), benefited from the strong credit sales growth in the recent years and increased by 13.4%.
Some R22.7m was received for business interruption losses relating to the 2021 civil unrest, which was accounted for in operating profit.
With the group expecting consumer spending to remain depressed in the months ahead due to impacts on the economy of increasing load shedding and congestion at the ports, consumer demand for credit was expected to continue, and the group planned to use the strength of its loyal customer base and differentiated merchandise offering to gain market share.
A further 10 stores are planned to open across the traditional retail brands in the second half.
BUSINESS REPORT