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Lewis Group Earnings up 24% on Strong Sales Growth

Lewis Group has reported the continued turnaround in the performance of its traditional retail brands in the year to March 2019, with strong merchandise sales growth and the early benefits of its diversification strategy driving headline earnings per share 24.3% higher to 376 cents.

The group’s total dividend has been increased by 17% to 234 cents per share.

Merchandise sales were boosted by the acquisition of United Furniture Outlets (UFO) and increased by 22.9% to R3.5 billion. Comparable store sales increased by 6.9%.

Cash sales increased by 51.1%, driven by UFO. Credit sales grew by 8.1% in the second half, reflecting the benefits of the change in the National Credit Act’s affordability assessment regulations on the group’s traditional retail brands of Lewis, Best Home and Electric, and Beares.

Operating profit grew by 16.8% to R443 million and the operating margin increased to 7.2%. Headline earnings rose 18.4% to R308.4 million.

The group’s balance sheet remains ungeared and the group has no borrowings, with cash and cash equivalents totalling R205 million at year end.

Chief executive officer Johan Enslin said the group’s strategy of diversifying across market segments and retail channels is starting to pay dividends. “UFO is proving to be a sound acquisition, with new stores trading well. UFO contributed sales of R478 million in its first full 12 months in the group and has enabled the business to access higher income customers.”

INspire, the start-up omni-channel home shopping retailer, is gaining traction and generated sales of R27.2 million in its first 10 months since launch. INspire has an extensive product offering across linen, bedding, tableware, cookware and small electrical appliances and targets customers in the LSM 4 – 8 categories.

Enslin said the group’s credit collection rates improved over the past year from 74.9% to 76.3% and resulted in an encouraging improvement in the debtor book despite the weak consumer credit environment. Debtor costs continued to decline and reduced by 11.9%.

The group’s store base increased to 784 as 30 stores were opened and 19 closed. UFO opened eight stores and closed three, bringing its store footprint to 36. Five to ten new UFO stores are planned for the 2020 financial year.

The group has 120 stores outside South Africa following the opening of 10 new stores in Namibia.

On the outlook for the year ahead, Enslin said the strong sales growth experienced in the second half is expected to continue into the new financial year, with UFO complementing the performance of the traditional retail brands.

He said the group’s diversification strategy is expected to continue to support sales growth. “UFO has extensive expansion opportunities and INspire is anticipated to reach break-even point in the forthcoming financial year,” he added.

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