Home Business Lewis hikes interim earnings despite several headwinds

Lewis hikes interim earnings despite several headwinds

Lewis hikes interim earnings despite several headwinds

Lewis Group generated R2.1 billion in merchandise sales for the six months ended September despite rising interest rates and high unemployment levels impacting consumer spending and confidence.

The JSE-listed company sells household furniture, electrical appliances, and home electronics in southern African countries.

In its financial results for the six months ended September 30, 2022, the group said merchandise sales were 4.5% higher than the previous period last year.

In an interview yesterday, Lewis Group CEO Johan Enslin said: “I think it’s fair to say that through the extremely challenging trading environment, we are satisfied with the results that we have achieved. You would have noticed from the results, that conditional portion of our business really performed well, and we actually achieved credit sales growth during this period of 60%.”

Credit sales grew by 16.4% while cash sales declined by 8.1%, reflecting the pressure on consumer disposable income.

“The contribution from credit sales has increased to 56.5% of total merchandise sales from 50.6% in the previous half year. During this time, the group has maintained its strict credit granting criteria and has attracted lower risk credit customers, with the application decline rate improving to 35.8%,” the group said.

It increased headline earnings by 4.4% to R236 million, while headline earnings per share grew by 19.2% to 393c, reflecting the positive leverage effect from the group’s aggressive share repurchase programme.

Lewis maintained its interim dividend at 195c per share.

The group said trading conditions had weakened significantly in the second quarter of the group’s 2023 financial year as escalating food, fuel and electricity costs, combined with rising interest rates and record-high unemployment levels, impacted consumer spending and confidence.

Operating profit before impairments and capital items declined by 4.1% to R316.4 million.

“Owing to slower trading in UFO, an impairment of R24.6 million was recognised against goodwill and an impairment of R20 million was recognised against its right-of-use assets relating to leased property. Operating profit for the six months declined by 17.1% to R282.8 million,” Lewis said.

According to Enslin, UFO was significantly impacted by very high logistic costs.

“We got to stabilise this brand and actually get into a position where it’s profitable again,” he said.

He said the group made management changes at UFO and changed its logistic partner.

Enslin said the group’s balance sheet was strong.

“If we look at the quality of the balance sheet it is something that we’ve actually been very proud of very many years,” he said.

Looking ahead, Lewis said retail trading conditions were expected to deteriorate further in the months ahead as consumers confront increasing inflationary pressures in the rising interest rate environment.

“These conditions are being compounded by the weak labour market, increasing industrial action and electricity load shedding, which will continue to disrupt consumer shopping patterns and weaken economic growth prospects,” it said.

Lewis’ shares closed 2.65% higher at R50.75, having increased by 4.19% in the past year.

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