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Johan Enslin. Picture: SUPPLIED
Johan Enslin. Picture: SUPPLIED

The management of Lewis is focused on reversing the fortunes of its underperforming high-end furniture business, United Furniture Outlets (UFO).

The group in its 2024 annual report said it was putting special focus on UFO to unlock value in that business, which reported a 12.6% reduction in sales in the year to end-March.

“Addressing the underperformance of UFO remains a management priority. We are committed to the turnaround in the business as we believe UFO has a strategic role in the group, targeting cash sales to higher income customers than the traditional retail brands,” CEO Johan Enslin said in his letter to shareholders.

“Ongoing strict cost management, sourcing new exclusive merchandise ranges and enhanced online and social media marketing strategies are aimed at driving a sustainable turnaround in performance.”

UFO is a cash retailer of luxury household furniture with a retail footprint of more than 50 stores. Lewis bought UFO, which targets the higher-income market, in 2017 for R320m.

Enslin attributed UFO’s performance to the pressure on consumers’ disposable income from high energy, food, fuel and borrowing costs, which constrained the group’s cash sales.

Lewis’ performance was driven by strong credit sales growth, expanding margins and the quality of the debtors book, with the percentage of satisfactory paying customers increasing to a new record level of 81.3%.

“The strong credit sales growth trend continued, with credit sales increasing by 15.8%, highlighting the resilience of the group’s business model. Credit sales have grown at a compound annual rate of 16.9% over the past three years and now account for 66.2% of total merchandise sales, compared to 59.9% last year,” Enslin said.

The collection rate ended the year on a solid 79.7%, while net bad debts as a percentage of debtors at gross carrying value reduced to 11.2% from 13.1% in the previous year.

According to the annual report, the crisis in the Red Sea and the rerouting of shipping away from the Suez Canal have contributed to a worldwide shortage of containers. Additionally, securing space on vessels has become a challenge for the company. These factors collectively highlight the severe disruptions in global logistics that Lewis is navigating at present. 

“Despite the macroeconomic headwinds, the group continues to invest in the longer term through the growth of the debtors book and expansion of the store footprint, with 20 new stores planned across the traditional retail brands in the new financial year,” the group said.   

“The group’s earnings increased by 6.2% to R436m and earnings per share increased by 15.9% to 806c, benefiting from the positive leverage from the group’s earnings-enhancing share repurchase programme. Headline earnings were 1.9% lower, while headline earnings per share increased by 7.1% to 925c,” it said.

Meanwhile, merchandise sales increased by 4.7% to R4.7bn for the year. After increasing by 4.2% for the first nine months, merchandise sales grew by 6.7% during the challenging trading conditions in the fourth quarter, supported by new product ranges.

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