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Lewis feels impact of economic climate

May 24 2017 18:38
Johannesburg - Lewis Group [JSE:LEW] posted its final audited results for the year ended March 31 2017 on Wednesday.

It reported a gross margin of 41.6%, an operating margin of 10.1% and headline earnings per share of 400.1 cents.

The total dividend declared was 200 centes per share.

The group said trading conditions continued to deteriorate during the year as economic growth slowed. The group's customer base was adversely impacted by the affordability assessment regulations, high levels of unemployment and the protracted drought affecting the rural economy.

After increasing by 1% in the first half of the reporting year, merchandise sales slowed in the second half and ended the year 2% lower. Like-for-like merchandise sales declined by 9%.

Stores outside South Africa contributed 24.1% of merchandise sales compared to 17.4% in the previous year. Group credit sales account for 65.2% of total sales.

Credit sales in Beares account for 56.6% of the brand's sales, while 67.2% of Lewis and Best Home and Electric sales are on credit.

Revenue

Revenue at R5.6bn was 3.3% down on the previous year owing to a 4.3% decline in other revenue. The gross profit margin expanded by 360 basis points to 41.6% due to more competitive procurement of locally sourced product, tight stock control and an increased sales contribution from the higher margin furniture category.

Furniture accounted for 56.3% of total sales compared to 54.4% in the prior year. Operating costs, excluding debtor costs, were well contained to an increase of only 5.5%. Expenses were impacted by the integration of the stores acquired outside South Africa, general compliance costs including the compliance call centre at head office and upgrades to the point-of-sale system in stores.

Slower revenue growth and higher operating and debtor costs contributed to the group's operating margin contracting to 10.1% compared to 14.1% in 2016. Earnings for the prior year included a once-off capital gain of R495.6m as a result of realising a large portion of the investment portfolio with Monarch Insurance Company, the group's insurer, which impacted earnings per share reported last year.

Headline earnings declined from R552m to R355m with headline earnings per share 35.6% lower at 400.1 cents.

Cash

The group remains strongly cash-generative. Cash generated from operating and investing activities was used to repay borrowings of R1bn and to fund dividend payments of R357m. At the end of the reporting period the group's cash and cash equivalents totalled R789m. The net asset value per share has remained stable at 6 133 cents, highlighting the strength of the group's balance sheet, it said in a Sens statement.

Consequently, the directors declared a final dividend of 100 cents per share, bringing the total dividend for the year to 200 cents per share compared to 517c per share in 2016.

The group said the collection performance of the debtors' book remains stable and debtor cost growth increased by 6.0% for the year reflecting an improvement from the 17% growth of last year. Debtor costs as a percentage of net debtors increased from 17.1% to 19.1% as a result of the higher bad debt experience and a lower debtor base. The level of satisfactory paid customers at 68.5% compares to last year's 68.8% despite the deteriorating consumer credit environment.

At year-end the group traded out of 761 stores across its three retail brands. Overall trading space was reduced by 2.5% as the group continued to open smaller format Lewis stores and close marginal stores. Lewis now has 201 smaller format stores in its portfolio of 513 stores.

During the year 17 stores were relocated to better trading sites or smaller premises, and 32 stores were refurbished. Following the integration of the 56 Ellerines and Beares stores acquired in Botswana, Lesotho, Namibia and Swaziland, the group has 116 stores outside of South Africa, accounting for 15% of the total store base.

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lewis group  |  earnings reports  |  retail

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