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Upmarket furniture boosts SA retailer Lewis Group’s profit

Lewis’s acquisition of luxury furniture firm, UFO, is helping it attract wealthier clients.
Lewis says it expects growth to continue into its 2020 financial year, driven by UFO, while INspire should also break-even. Picture: Moneyweb

South Africa’s Lewis Group reported a 24.3% rise in full-year earnings on Wednesday as a luxury furniture firm the retailer acquired two years ago helped it attract wealthier customers.

Shares in the furniture and appliance provider rose more than 5% as investors cheered the results and a 17% increase in the group’s full-year dividend to 234 cents per share.

Lewis Group said headline earnings per share (Heps) for the year ended March 31 climbed to 376.2 cents from 302.6 cents a year earlier. Heps is the main profit measure in South Africa that strips out certain one-off items.

It credited its performance to the acquisition of luxury household furniture retailer United Furniture Outlets (UFO), which it said had given it access to higher income consumers as well as its mainstay middle- to low-income customers.

Chief Executive Johan Enslin said UFO’s new stores were trading well, and the unit had contributed R478 million ($33 million) worth of sales in its first full 12 months as part of the group.

“UFO is proving to be a sound acquisition,” he said in a statement.

The retailer said a 22.9% rise in merchandise sales to R3.5 billion was largely down to the new luxury division, with its wealthier customers boosting cash sales 51.1%.

South African consumers, usually reliant on credit for purchases of all sizes, have been squeezed in recent years by high levels of household debt, tax increases and widespread unemployment.

Many retailers have struggled as customers have cut back spending to cope with pressures on their income.

Lewis Group, whose shares were up 5.6% at 08:09 GMT, also launched INspire last year, a unit that allows consumers to shop online as well as in store, in a bid to attract online shoppers. After a slower-than-expected start, INspire has generated sales of R27.2 million, the firm said.

While online purchases make up only 1.4% of total retail sales in South Africa, many retailers are moving into e-commerce to get ahead of a trend that has hit peers overseas.

Lewis Group would continue to grow its online offering, though it didn’t expect it to be a significant part of the business for some time, Enslin told Reuters by phone. It also planned to open 10 new stores over the next year, he added.

Overall, Lewis Group said it expected growth to continue into its 2020 financial year, driven by UFO, while INspire should also break-even.


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