Lewis fall gains momentum

Trading update reveals earnings may be down by as much as 45% , knocking share price to a seven-year low

The Lewis share price slumped to its lowest level in seven years on Friday after a trading update revealed that the soon-to-be released interim results would show earnings down by as much as a staggering 45% on the financial 2016 interims. The share fell 8% to R38 in morning trade before recovering to close at R40.27, a fall of 3.3% on the day.

CEO Johan Enslin told shareholders at the annual general meeting on Friday that headline earnings a share for the six months to September are expected to be between 177c and 210c. This is a drop of between 35% and 45% from the 322.6c reported for the six months to September 2015.

Enslin attributed the weak performance to “the challenging economic and consumer environment” that had affected the group’s lower- to middleincome target customers. “This has been compounded by the ongoing impact of the National Credit Regulator’s (NCR’s) affordability assessment guidelines that are restricting access to credit in SA and severely limiting the group’s credit sales,” said Enslin.

The new affordability guidelines, which were implemented in 2015, are aimed at preventing overindebtedness resulting from reckless lending.

Despite the challenging conditions, the group managed to hold revenue decline to just 2%. Other revenue, which includes finance charges, initiation fees and insurance income, was down 4%. The group’s gross profit margin rose in line with management’s expectations, said Enslin, to 40.5% from 36.4%.

Industry analysts said it was difficult to explain what was behind the hefty 45% drop in November 9 will fill in the gaps.

Chairman David Nurek spent the first 15 minutes of Friday’s meeting outlining the various legal battles Lewis was involved in. The list included two referrals by the NCR to the National Consumer Tribunal, one of which has been dismissed and the second is being opposed by Lewis.

There are also two high court summonses relating to damages for alleged breaches of the National Credit Act. Lewis is disputing all of the allegations.

In addition, two applications that were lodged at the High Court in Cape Town to have four Lewis’ directors declared delinquent have been set aside. The first was dismissed and the second has not been heard.

The only actions initiated by Lewis are three complaints lodged with the Financial Services Board relating to allegations of insider trading, market manipulation and disseminating false information by activist Dave Woollam.

Two of these complaints have been dismissed and the third is pending.

A STEEP INCREASE IN FINANCE COSTS OR A SHARP DROP IN INVESTMENT INCOME COULD EXPLAIN THE CLIFF-LIKE FALL IN EARNINGS