Lewis warns of tough trading conditions

Furniture retailer Lewis’s share price jumped as much as 8.7% to an intraday high of R89.90 on Tuesday despite releasing a downbeat trading update for the nine months ended December.

The firm’s statement on Tuesday warned trading conditions ‘remained challenging with continued weak consumer demand and constrained employment still in evidence.’ Lewis said its revenue grew 4% while merchandise sales rose 3% during the nine months compared to the matching period in the previous year.

While growth over the period was an improvement from the retailer’s half-year, it was largely driven by promotional activity, as well as the boost from the Beares stores it acquired from the curators of Ellerines.

According to Barclays analysts, with credit growth to households still fairly pedestrian while limited job creation is weighing on income growth, any rebound in household consumption spending will be modest this year.

In Lewis’s half-year to last September, revenue growth of 1.6% was recorded, while merchandise sales fell 3.5%.

With more than 70% of its sales on credit, Lewis bought the Beares brand and 63 existing Beares stores for R40m, as well as stock worth R50m last year. The deal has given the group critical mass in the higher income space, with Lewis’s My Home chains being rebranded as Beares.

According to analysts, players have opened too many furniture stores over the past couple of years. SA’s four main furniture retailers — Shoprite’s OK Furniture, JD Group, Lewis and Ellerines have just more than 3,300 stores in the country.

Ellerine Holdings, owned by African Bank, is selling off Geen & Richards and Wetherlys, piecemeal.

‘Owing to the increased promotional activity to stimulate sales in response to the ongoing stock clearances in Ellerines, the group’s gross profit is slightly below the level of last year,’ Lewis said. At Lewis, there was a slight improvement in collections, as the increase in debtor costs for the nine-month period declined to 25% from 27% at the half-year in September last year.

Other than tables, couches and chairs, SA’s furniture retailers have over the past few years been dishing out credit through their financial products, but higher transport and food costs, unemployment and rising debt has led to deterioration in the collection rates of credit extended. Of course in tough times, shoppers also hold back on buying furniture.  (Bus. Day, 28 January 2015)

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