Lewis surges 9.5% on strong half-year results

The share price of JSE-listed household furniture retailer Lewis Group surged 9.48% on Wednesday, hitting a new 52-week high and closing at R47.45 following the release of a strong performance for the six months ended September 30.

Lewis posted a 20.7% increase in its merchandise sales to R1.99 billion, leveraging high volumes of stock availability.

The group’s interim results show credit sales grew by 24.4% and cash sales by 17.1%, with credit sales accounting for 50.6% (H1 2021: 49.1%) of total merchandise sales. Comparable store sales increased 17.9%.

Read: Lewis and Pepkor surge to 52-week highs

However, the double-digit growth in sales is compared to the Covid-hit interim period of its prior financial year. Its comparative half-year period (April-September 2020) reflected the impact of the Covid-19 hard lockdown, when all 681 of its SA stores were forced shut for at least six weeks.

Store, sales growth

Despite challenges in the supply chain during its latest interim period, as well as the impact of the July civil unrest in KwaZulu-Natal and parts of Gauteng, Lewis still managed to open 10 new stores across all its brands, increasing its store footprint to 817.

The retailer says its stores outside SA, which represent 15.8% of the store base, grew 17.5% and accounted for 18.3% of the company’s sales.

“Solid merchandise sales growth and reduced debtor costs contributed to operating profit increasing by 23.3% to R341.2 million, with the operating profit margin improving from 16.8% to 17.1%,” Lewis notes in its results statement.

The group’s headline earnings increased by 24.5% to R226 million, with headline earnings per share (Heps) increasing 39.7% to 330 cents.

Lewis says this (surge in Heps) also reflected the positive leverage effect from the group’s aggressive share repurchase programme.

“The group repurchased 5.4 million shares at a cost of R194.5 million during the past six months. Since the start of the share repurchase programme in 2017, the group has bought back 22.7 million shares at an average price of R29.52 per share,” it points out.

July unrest impact

Lewis says 57 stores were damaged and looted in KwaZulu-Natal during the unrest, however it has managed to reopen 51. It plans to reopen the remaining six once the damages have been repaired.

“The group’s [South African Special Risk Insurance Association] Sasria claim amounted to R79 million, with R43 million having been paid out and recognised in the results to end September. The balance of the insurance claim of R36 million is expected to be received before the end of the financial year,” the retailer adds.

“We continued to pursue our strategy of increasing inventory levels to ensure adequate stock cover to meet customer demand and to counter the ongoing challenges in the supply chain,” says Lewis CEO Johan Enslin.

“Our good stock position is a competitive advantage going into Black Friday and the festive season,” he adds.

Lewis Group points out that its debtors’ book also continues to improve as collection rates strengthened to 78.7% (H1 2021: 66.5%). The percentage of satisfactorily paid accounts increased to a 14-year high and debtor costs declined by 32.8%.

Enslin says while sales and collections momentum continued into October, management forecasts trading conditions to become increasingly challenging for the remainder of the financial year.

Read: Retailers can expect an uptick in sales from this year’s Black Friday

“High levels of unemployment, rising interest rates and the sensitivity of our core target market to higher fuel and food prices is expected to constrain spending in the months ahead,” he adds.

“This will be compounded by the widespread electricity load shedding which is disrupting trade and impacting sales. Covid-19 continues to pose a risk to the trading outlook.”

Lewis Group declared an interim dividend of 195 cents per share, 46.6% up compared to its prior interim period.

Palesa Mofokeng is a Moneyweb intern.