Furniture retail shows signs of recovery

Analysts are watching the furniture market with keen interest as sales pick up in what is a highly cyclical part of the retail sector. Lewis Group, which owns Lifestyle Living, reported a 6.8 percent rise in revenue in the four months to July compared with the previous year while sales at JD Group, which owns Joshua Doore, grew 2 percent in the year to February.

In mid-July the share prices of both these retailers spiked as investors began working up an appetite for the stocks, analysts say. Last month Lewis's share price reached a six-month high of R54 while the share price of the JD Group, which also owns Incredible Connection and Morkels, jumped to R48 a share.

"Investors are aware that these stocks are bound to start appreciating and that they have been undervalued as nascent signs of an economic recovery become salient," said Werner Smit, an equity analyst at Thebe Securities. In May, JD Group's chief executive, David Sussman, said the group would start seeing an improvement as the year drew to a close.

"JD Group's pick-up may have fuelled a similar interest in the Lewis Group," Smit added.

According to Smit, the furniture sector would be the first to start showing signs of recovery, as it was also the first sector to be hard hit by the recession.

A low inflationary environment led to House and Home, the furniture division of Shoprite, growing its revenue 13.9 percent in the year to June.


"These increases are not going to be earth-shattering, but on the basis of these retailers' results, it looks as if the economy is slowly turning," Smit added.

Meanwhile at Ellerines, merchandise sales for the quarter to June dipped 14 percent from R1.08 billion previously to R935 million, owing to a smaller store base, with sales declining by 7 percent.

The credit sales mix improved at the African Bank Investments Limited (Abil)-owned group, but it was largely focused on improving its underwriting criteria in order to improve its asset quality in the next year.

Although retrenchments remain a risk to the entire retail sector, an analysis of Lewis's debtor base of approximately 700 000 customers indicates only 2.8 percent are currently unemployed.

In June, bad debts at Lewis rose 16 percent to R89m while JD Group's bad debt write-offs increased by 24 percent to R421m in the six months to February.

According to Chris Gilmour, an equity analyst at Absa Asset Management, Lewis customers, who tend to be from lower-income groups, are likely to be well-guarded against the effects of recent high interest rates, which have tripped up higher-earning consumers.

Get commercial property news by email

Free alerts when we publish — pick a focus or get everything, unsubscribe in one click. Subscribe »