LEWIS : POSTS STRONG CREDIT GROWTH IN WEAK CONSUMER CLIMATE

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May 25, 2023

Cape Town - Lewis Group reported resilient credit sales growth and a strong debtors' book performance in the year to March 2023, while the group's overall results reflect the poor state of consumers in South Africa's low growth, high inflationary environment.

Headline earnings were 9.8% lower at R506 million while headline earnings per share increased by 1.0% to 857 cents, reflecting the positive leverage from the group's aggressive share repurchase programme.

The group has returned over R1.1 billion to shareholders since the start of the buy-back programme in 2017, repurchasing 31.5 million shares. In the past year the group repurchased 5.5 million shares at a cost of R276 million.

The board maintained the total dividend at 413 cents per share, showing its confidence in the group's cash generating capability and prospects.

CEO Johan Enslin said escalating fuel, energy, food and borrowing costs is placing significant pressure on spending, with load shedding weighing heavily on consumer sentiment and economic growth.

"Despite this weak consumer environment, the group's debtors' book showed good growth of 7.5%. Our collection rates strengthened from 79.0% to 80.8% due to enhanced collection strategies. The percentage of satisfactory paid accounts increased to a record level of 80.4%, improving significantly from 68.4% five years ago," he said.

Credit sales grew strongly by 18.1% and accounted for 59.9% of total merchandise sales, compared to 51.4% in the prior year. Cash sales slowed further and declined by 16.3%.

Total merchandise sales increased by 1.4% to R4.4 billion. Sales in the traditional retail brands of Lewis, Beares and Best Home & Electric increased by 3.5% while the cash retailer UFO reported a decline of 12.5%. Total revenue increased by 3.1% to R7.5 billion.

Enslin said the group has continued to expand its store footprint and opened a net 21 new stores, the highest net store openings since 2016, bringing the store base to 840. "We will be accelerating our store expansion programme in response to opportunities to acquire well located trading space and plan to open 25 stores in the new financial year."

The group's gross profit margin strengthened to 40.6% despite increasing cost pressures. Enslin said the group has secured better shipping rates "which are approximately 70% lower than the inflated sea freight charges reported since the outbreak of the Covid-19 pandemic in 2020". UFO in particular will benefit from these lower rates as approximately 65% of the chain's merchandise is imported, he said.

On the outlook for the new financial year, Enslin said the current tough retail conditions are likely to deteriorate further with increasing pressure on consumer disposable income due to rising interest rates, transport costs, energy and food prices. Electricity load shedding will continue to disrupt trade and impact sales patterns.

"The consumer appetite for credit is expected to continue into the new financial year while the more favourable shipping rates on imported products should support sales growth. However, the weakening Rand could put pressure on the group's import programme and pricing strategy."

"The group has proven its resilience through previous economic downturns and we are confident in the group's medium-term prospects," he added.

Ends

Issued by Tier 1 Investor Relations on behalf of Lewis Group

Enquiries
Graeme Lillie
Tier 1 Investor Relations
082 468 1507