Lewis results beat all predictions

Furniture retailer Lewis increased merchandise sales by 11.7 percent last month, astonishing analysts who had expected a dismal performance for durable goods retailers over the festive season. Revenue for the quarter to December grew by 7.9 percent year on year, with merchandise sales for the same period increasing by 7.3 percent.

"This is bizarre. We are definitely seeing a segmentation of the consumer here," said Christopher Gilmour, a retail analyst from Absa Asset Management. According to Gilmour, the results show the more affluent consumer is "coming back to the party".

The overall condition of the debtors book, as measured by the group's doubtful-debt provision, remained stable. Paul Bosman, an analyst from PSG Tanzanite, said the fact that provisions had not moved out any further was very encouraging.

"We were slightly concerned about the significant increase in unemployment leading to a deterioration of the Lewis book. The doubtful-debt provision as a percentage of the total debtors book has in fact decreased slightly, from 17.9 percent to 17.4 percent.

"Decreasing provisions lead to higher profits, which is why the earnings of credit retailers take off when the cycle turns - top line growth is combined with shrinking provisions.

"Keeping this in mind, Lewis remains attractively priced," Bosman said.


The key to the performance of the group, which includes the Lifestyle Living and Best Home and Electric chains, lay in its customer-centred focus.

"They have not gone the call centre route, which has stood them in good stead," Gilmour noted.

Both analysts felt that the company's sales had been boosted by the "good relations they have with their customers". The group's business model shows that more than 60 percent of its sales take place on a repeat basis.

Lewis is South Africa's largest furniture brand and contributes 82 percent of the group's merchandise sales.

Best Home and Electric has increased its share of group sales to 12 percent through a store-expansion programme over the past few years, while Lifestyle Living focuses on higher-income customers and accounts for 6 percent of sales.

Gilmour said Lewis had performed better than some cash retailers, such as Mr Price, which posted an 8.4 percent rise in third-quarter sales last week.

"This result shows that the majority of the group's clients are relatively secure in their jobs, although most are not that exposed to interest rates, as they fall within the middle to lower living standards measures," Gilmour said.

Get commercial property news by email

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