Lewis’s sales improve as UFO takes off
The furniture retailer’s strategy to sell more goods for cash has lifted revenue 24.6% in the nine months to end-December
Furniture and appliance retailer Lewis Group’s push into cash sales has paid off with the group managing to shrug off the effects of a sluggish local economy.
The group, which had previously relied heavily on credit transactions, delivered strong sales growth of well over 20% over the festive season.
The group attributed its growth for the quarter to end-December in large part to the performance of its recently acquired United Furniture Outlets (UFO) chain.
Lewis, which traditionally focuses on low-income earners and runs 799 stores, said UFO, which sold goods for cash to middle- to upper-income customers was the main reason merchandise revenue had risen 22.8% for the quarter. Revenue was up 24.6% in the nine months to end-December.
The acquisition of UFO formed part of its strategy of increasing its proportion of cash sales and selling more goods to middle-to upper-income customers.
Lewis CEO Johan Enslin said in November that this strategy was part of his efforts to reduce risk for the business.
Lewis made R2.97bn in total retail sales for the half year to end-September, but about R1bn came from what it called “other revenue”, which comprises finance charges and initiation fees, as well as insurance premiums.
Though there was a sharp rise in merchandise revenue, its other revenue only increased 0.8% for the quarter. “This is largely due to lower credit sales in prior years and the adverse impact of regulatory capping of credit insurance, which has constrained annuity income streams,” the group said.
Lewis’s strong growth came in sharp contrast to the difficulty experienced by other retailers over the festive season.
Rival furniture and appliance retailer Pepkor, for instance, reported sales growth of only 0.6% and a decline in like-for-like sales of 2.7% for the quarter to end-December, earlier in the week. “The spending patterns of financially constrained consumers favour essentials as opposed to durable product categories,” Pepkor said.
The group has also gained from many of its rivals reducing the number of stores they operated over the last five to 10 years, said Sasfin Bank senior equity analyst Alec Abraham.
Enslin said in November that, by his estimate, as many as 1,100 retail stores had shut their doors over the past few years.
Pepkor for example, closed 300 furniture and appliance retail stores over the past three years, even doing away with its iconic Joshua Doore chain.
There was a similar story at African Bank, which closed down more than 1,000 Ellerines and Beares stores.
“The industry has consolidated over the past few years, and when this happens, the survivors tend to do well,” Abraham.
Lewis’s total revenue, comprising merchandise sales and other revenue, rose 13.2% for the quarter and was up 12% for the nine months.
The rise in revenue sent Lewis’s shares up as much as 8.41% in morning trading on Wednesday.
It’s share price closed up 4.92% at R32.42 giving Lewis an attractive price:earnings ratio of just over 10.