Lewis Group slides as CEO says trading was challenging

By:  Colleen Goco

Furniture retailer Lewis Group shares suffered a knock on Friday after CEO Johan Enslin said trading for the four months to the end of last month was ‘extremely challenging’.

Friday marked the fourth consecutive day of losses making the week ended August 15 its weakest in eight months. The share closed 2.41% lower at R58.21.

Speaking at the group’s annual general meeting, Mr Enslin said protracted strike action, labour unrest, high levels of unemployment and high levels of indebtedness had resulted in consumers adopting a cautious approach to incurring debt and being selective in paying accounts.

‘As a result, debtor costs for the period increased by 30% and merchandise sales declined by 0.8% on the corresponding period last year,’ he said.

Vestact equity analyst Byron Lotter said it had been a tough period for all furniture retailers.

He said Lewis was geared towards consumers in the lower LSM bracket and it would stand to reason that funds usually used for furniture purchases were being diverted to transport and food.

‘For quite a while, their credit book was growing but that’s not sustainable, as African Bank showed. The company pushes for credit sales in order to guarantee income for the future but there is also the reality of now.’

Mr Enslin said management expected the trading environment to remain challenging for the remainder of the financial year. The group would continue to invest for the future and was on track to open 20 new stores in this financial year, he said.

Analysts from Intellidex, the market and financial services research house, said it was difficult to see how the company would find new sources of growth given the economic outlook remained bleak. ‘Against this backdrop, the company has to find ways to entice an already debt-burdened customer base to start buying again. This will test the prowess of management.’ (Bus. Day, 1 February 2016)

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