Lewis share price jumps on positive update

Lewis’s share price surged almost 18% after a strong trading update that indicated the worst was behind the furniture retailer as it boosted sales and improved debt collection.

The share price of Lewis, which reported a “satisfactory” increase in sales for the third quarter and nine months ended December 2017, closed 17.7% higher at R28.60, continuing the growth trajectory it began in December 2017 after a year of steady declines.

Lewis was down 37% at the end of 2017 and has climbed 8.17% so far in 2018.

Equity analyst at Vele Asset Managers Matthew Zunckel said the Lewis stock was sitting on a cheap multiple “so there is potential for the share price to improve considerably”.

The South African-based Lewis Group houses the Lewis furniture store chain, Best Home and Electric, as well as Beares.

It operates in a number of countries in Southern Africa including Botswana, Lesotho, Namibia and Swaziland, and sells mostly to lower-income

consumers on in-store credit. It reported a marginal increase in revenue of 0.7% during the quarter, a turnaround from the 3.2% decline it reported in its interim results for the six months to September.

“If they can sustain revenue growth, it will be much easier to grow earnings,” Zunckel said.

But revenue for the nine months eased 1.7%. Lewis attributed this decline mainly to a 9.6% reduction in what it termed “other revenue”, which was negatively affected by lower credit sales in prior years.

The reduction was also facilitated by the insurance capping regulations that were implemented in August 2017. While the reduction in insurance rates benefits consumers, who pay lower instalments, it has had a negative effect on the business. Lewis expects this trend to continue into 2018.

But Lewis also improved on its collections, reducing its debtor costs 11.2% for the nine months. Lewis group CEO Johan Enslin said collection initiatives launched recently were starting to pay off.

He said that while he was pleased with the encouraging results, there were plans in the pipeline to expand its brands.

Lewis received the go-ahead from the Competition Commission to acquire United Furniture Outlets, a luxury cash business with more than 30 stores nationwide. “We are in the process of completing that acquisition. This brand will give us an opportunity to service the higher LSM group and it is scalable,” Lewis said.

Merchandise sales for the quarter were 9.8% higher than those of the previous matching period, resulting in 7% growth for the nine months to December. Comparable store sales increased 13.3% for the quarter and 9.8% for the nine months.

Zunckel said Lewis’s strong performance, along with Shoprite’s positive update on its furniture business and decent furniture retail sales numbers from Statistics SA, indicated that “furniture retailers could be turning the corner”.