Micro-cap Luxe Holdings (formerly Taste Holdings ) has taken a serious hit from the Covid-19 lockdown and related restrictions to trade.
The Sandton-based group, which owns jewellery chains NWJ and Arthur Kaplan as well as a single World’s Finest Watches store, posted an operating loss from continuing operations on Monday of R11.5 million for its half-year to the end of August 2020.
Its losses widened 51% compared with R7.6 million in the prior corresponding period, largely due to the pandemic’s impact.
Luxe’s headline loss per share improved by 74% to 101.7 cents, from 385.6 cents per share in the prior corresponding period.
The group, however, noted in its interim results statement that the per-share improvement was “mainly due to discontinued operations” as the remaining food business only impacted the results until March 19, 2020. This was the date that its remaining food businesses, including the Domino’s Pizza chain in SA, were placed into liquidation.
Read: Domino’s fall for Taste
Taste Holdings, which once had a market cap of around R700 million, ran into financial trouble following an over-geared expansion that included several capital raises in recent years.
The group’s failed expansion strategy included converting its once highly successful Scooters Pizza chain into Domino’s-branded outlets and the costly launch of the Starbucks coffee chain in SA.
Added to the mix was its foray into jewellery retail with the acquisitions of NWJ and Arthur Kaplan.
Taste, which changed its name to Luxe Holdings in July following its exit from the food franchise game and move to focus exclusively on luxury retail, sold the Starbucks business in SA last November for just R7 million. Luxe’s current market capitalisation is now just over R30 million.
With its repositioning to focus on luxury retail, which currently is in the jewellery and watches space, Luxe hardly made mention of the discontinued food business in its latest results.
Luxe reported that revenue from continuing operations decreased by 42% to R127 million, from R217 million in the prior corresponding period. This was largely due to Covid-19 related lockdowns and restrictions to trade in the first three months of its current financial year (March to May).
Same-store sales (excluding newly-opened stores) within the group plunged 40% during its half-year to the end of August, with NWJ reporting a drop of 37% and Arthur Kaplan/World’s Finest Watches a decline of 43%, respectively.
The group, however, noted in an interim results media statement that sales within its three retail brands “have proved surprisingly resilient” since the re-opening of stores in June. This, it said, pointed to a more positive second half of the year.
Luxe CEO Duncan Crosson said in the statement that, as with other businesses trading outside the non-essential goods category, the lockdown had “a severe impact on sales”.
He noted that although the financial year started with South Africa in a recession, government debt on the rise, a weak rand and ongoing load-shedding, the group’s early March trading performance had been fair and on target.
“However, the closure of stores from March 26 to May 31 resulted in lost revenues for more than a third of the period under review,” he said.
Post lockdown, Crosson said pent-up demand saw June same-store sales increase by 13%, exceeding group expectations.
He added that the sales performance since re-opening of stores on June 1 had been resilient, with same-store sales for the three months ended August at -6%, whereas same store sales for the three months ended May were at -76%.
During September and October, same-store sales continued to exceed expectations, with September sales growing 5%, but October down 4%.
Crosson believes that the group’s “growing online business, the breadth of its product offering and the fact that community and neighbourhood store locations had outperformed major regional shopping nodes, had helped mitigate the effects of the pandemic” on the business.
He said the shift in consumer behaviour to online shopping had been seen in a massive 386% (+185% on a comparable basis) increase in online sales for the half-year.
Meanwhile, Crosson is cautiously optimistic that sales will continue to recover for the remainder of the financial year.
“We are navigating through the new normal on a cautious basis given the considerable uncertainty and unpredictable trading patterns, coupled with a distressed consumer and footfall in shopping centres which has not returned to pre-lockdown levels,” he said.
“Due to the seasonality of the business, we expect sales and profits to be more heavily weighted in the second half of the financial year with Black Friday, Christmas and post-Christmas promotions being the biggest contributors,” Crosson pointed out.
Anthony Clark, an independent analyst at Small Talk Daily, who was a vocal critic of the former Taste business in recent years, was not impressed by Luxe’s performance – despite the impact of Covid-19.
“The numbers were rubbish. Cash on hand fell 65%… Who wants to be in the jewellery business in this country right now, given the fact that they [Luxe] are spending more money on security [due to an increase in robberies]? Jewellery is one of the last things people will buy in this economy,” he said.
“The company itself, with a market value of just R30 million, is limping along… I am amazed that it hasn’t gone bankrupt. It isn’t worth commenting on this company actually,” added Clark.