Lewis Group overcame severe trading restrictions in the first two months of the national COVID-19 lockdown to recover strongly and increase operating profit by 13.6% for the six months to September 2020.
Headline earnings per share increased by 9.9% to 236 cents and the board declared an interim dividend of 133 cents per share, 10.8% higher than last year.
The group owns the Lewis, Best Home and Electric, Beares and UFO brands. All stores in South Africa were closed from the start of the national lockdown on 27 March 2020 and reopened on 1 June 2020.
Chief executive officer Johan Enslin said the group experienced strong customer demand following the reopening of the stores at the beginning of June.
“While sales growth was initially supported by pent up demand and savings accumulated during lockdown, this momentum was maintained which contributed to sales increasing by 20.1% for the four months to September 2020.”
Cash sales for the four months increased by 46%, with credit sales growing by 1.5%.
Enslin estimated that the group lost approximately R360 million in merchandise sales and R250 million in customer account collections as a result of the lockdown. “Owing to these trading conditions, merchandise sales for the six months were 4.9% lower at R1.65 billion,” he said.
The group expanded its gross profit margin by 20 basis points to 40.5% while the operating profit margin improved by 120 basis points to 9.1%.
Enslin said the group’s robust balance sheet and cash position ensured that no bank funding was required as the business remained cash positive during the lockdown period. At the end of September 2020, the group was unborrowed.
The group’s debtor book performed satisfactorily in the six months to September 2020 and the board believes that the impairment provisions are adequate to meet future bad debts. Collection rates declined to 66.5% for the six months owing to the slow collections during the initial stages of lockdown but recovered to average 73.2% for the second quarter.
During the past six months the group opened a net 11 new stores, increasing the store footprint to 805. This includes 125 stores in the neighbouring Namibia, Botswana, Eswatini and Lesotho. Enslin said the group remains on track to open 20 new stores across its trading brands in the 2021 financial year.
The group repurchased 1.6 million shares during the reporting period, at an average market price of R16.91 per share. Since the start of the share repurchase programme in 2017, the group has bought back 13.6 million shares at an average price of R28.65 per share.
On the outlook for the group, Enslin said trading conditions are expected to become more challenging into the 2021 calendar year, with customers in the group’s lower to middle income target market being vulnerable to the rising levels of unemployment.
“Extensive merchandise and marketing promotions have been developed for the two biggest trading periods of the year, covering this week’s Black Friday and the festive season in December, which we believe is an opportunity for the group to gain market share,” he added.