Lewis Group overcame the adverse impact of the Covid-19 trading restrictions to deliver a strong operating performance for the year to March 2021, with headline earnings increasing by 126.4% to R463.0 million.
A total dividend of 328 cents per share has been declared, an increase of 77.3% over last year.
The group’s balance sheet remains robust with no borrowings while cash generated from operations increased by 46.8% to R915 million.
Chief executive officer Johan Enslin said the growth in operating profit of 174.2% was driven by buoyant merchandise sales which recovered strongly following the lockdown, together with the improving quality of the debtors’ book and tight cost management.
Merchandise sales increased by 6.7% to R3.9 billion. Following a decline of 4.9% in the Covid-19 impacted first half of the year, sales grew by 17.0% in the second half of the year. Cash sales increased by 25.9%, while credit sales declined by 7.9% as a result of the hard lockdown.
Enslin said sales were supported by new merchandise ranges introduced in the second half of the year and high levels of stock availability. “We took a strategic decision not to cancel any orders when the country went into lockdown which ensured that our stores were well stocked to meet the post lockdown demand.”
The group expanded its gross profit margin by 80 basis points to 41.8% while the operating profit margin more than doubled from 6.9% to 17.7%.
Operating costs continued to be tightly managed and reduced by 2.9%. Debtor costs reduced by 19.5% over last year when an additional Covid-19 debtors’ impairment provision of R189.5 million was raised. This reflects the improving quality of the debtors’ book which is being supported by enhanced collection practices.
The health of the debtors’ book continued to improve during the year, with satisfactory paid customers increasing from 70.5% in 2020 to 74.4% in 2021. After losing approximately R250 million in customer account collections when stores were closed in April and May 2020, collection rates recovered steadily after lockdown and averaged 71.8% for the year compared to 74.5% in the previous year.
The group repurchased 5.4 million shares during the year at an average market price of R20.92 per share. Since the start of the share repurchase programme in 2017, the group has bought back 17.3 million shares at an average price of R27.38 per share.
Over the past year the group opened 24 and closed 11 stores, increasing the store base to 807. A net 10 Beares stores were opened while UFO expanded its store footprint in the Eastern Cape and opened its first store in the Western Cape. Enslin said the group plans to open 15 to 20 stores in the new financial year, mainly in the Beares and UFO chains.
On the outlook for the group, Enslin said the sales momentum has continued into the new financial year, supported by good stock availability.
“We have increased our inventory to ensure adequate stock levels to counter the challenges in the supply chain, including the global shortage of shipping containers and severe port congestion.”
Enslin cautioned that the group is expecting trading conditions to become increasingly challenging in the months ahead. “The potential impact of a third wave of Covid-19 infections, together with Covid relief grants being discontinued, could result in further economic pressure on our customer base,” he said.