Lewis customers turn to credit as pandemic hits

For many customers of the Lewis Group, credit was the preferred method to purchase furniture and appliances that would create comfortable and productive spaces during the national lockdown.

Most customers chose to purchase beds, lounge suites, fridges, stoves and washing machines during the first three months of the lockdown and that trend has persisted despite restrictions being eased, says the group’s CEO Johan Enslin.

The group – which owns Best Home and Electric, Beares and United Furniture Outlets (UFO) – saw its credit sales grow by 1.5% to R809.4 million during the six months to end September 2020.

Merchandise sales were 4.9% lower at R1.65 billion.

The group lost R360 million in merchandise sales over the period and R250 million in customer account collections resulting from the lockdown.

Other revenue, consisting of finance charges and initiation fees, insurance premiums and services rendered, was less impacted by the lockdown, the company says.

The debtors book grew by 6.5% to R5.7 billion and debtor costs increased by 35.7%.

The group impairment provision was increased by R34.4 million for the first half of the six months due to the expected payment behaviour of its customers.

Collection rates declined to 66.5%, impacted by the slow collections during the initial stages of lockdown. Collections however recovered as lockdown restrictions were eased from July, as more economic activity was permitted. For the second quarter, the group collections averaged 73.2%.

“The level of satisfactory paid customers steadily improved post lockdown to reach 69.5% at end September, compared to 74.2% in the prior period,” the group said in an update on Tuesday.

Revenue decreased by 1.6% to R3 billion, while profit rose 6.7% to R182.6 million.

The group says it has been able to tightly manage its operating costs, which reduced by 9.1%, with lower transport, occupancy and administration costs accounting for the bulk of the reduced costs.

Costs were also managed by a reduction in marketing expenses due to limited activity in April, when none of its stores were permitted to operate and in May when online purchases were permitted.

Despite a tough two months of trading due to the lockdown, the group’s operating profit increased by 13.6% due to a strong recovery in sales following the hard lockdown months.

Headline earnings per share increased by 9.9% to 236 cents and the board declared an interim dividend of 133 cents per share, 10.8% higher than last year.

The group remains on track to open 20 new stores across its trading brands in the 2021 financial year.

Enslin expects the six weeks from Black Friday heading into the festive season to produce strong sales for the group. He says its credit offering gives it an advantage over its competitors.

However, he has warned that the tough trading environment brought about by Covid-19 is expected to persist, because customers in the group’s lower- to middle-income target market remain vulnerable to the rising levels of unemployment in the country.

This article first appeared on Moneyweb and was republished with permission.

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