Lewis Group has said it expects a significant drop in full-year headline earnings, but the news came as no surprise for investors, who pushed the share price up as much as 3% in intraday trade on Thursday.

Avior Capital Markets consumer goods analyst Mark Hodgson said the update, released late on Wednesday, had been in line with expectations.

Hodgson said the statement showed like-for-like metrics that were still concerning while gross profit margin and net debt improvements were pleasing.

Merchandise sales for the year to March showed a 2.2% decline with like-for-like sales down 9.3%. The furniture retailer said that overall revenue decreased 3.3%.

The group’s gross profit margin improved to 41.6% from 38% in the previous year.

"The trading environment continues to be tough for Lewis in the short run and management’s outlook is likely to be cautious," said Hodgson.

Lewis said the drop in earnings was partly due to its 2016 results benefiting from a one-off windfall of R496m from selling an investment portfolio held in its subsidiary, Monarch Insurance Company.

Lewis said headline earnings per share for the year to March would fall 30%-40% compared with R6.22 in the previous year.

"The performance for the year reflects the challenging economic and consumer environment in which the business is trading," said Lewis.

"These conditions, together with the effect of the affordability assessment regulations, continue to impact the group’s lower to middle-income target market and consequently the group’s sales," the company said.

The group said it had remained strongly cash generative with low levels of gearing at 2.9%.

With Robert Laing

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