Lewis Group has released its year end results, following a contracted trading environment. The group has announced that it expects its trading environment to be strained going forward. Lewis Group holds a current market cap of R6.13 billion, with a PE ratio of 6.2 and a dividend yield of 8.27%.
Highlights from the SENS report:
- Revenue up 1.8%
- Gross profit margin 36.7%
- Cost growth, excluding debtor costs 1.6%
- Headline earnings per share 921 cents
- Cash generated from operations up 47%
- Total dividend maintained at 517 cents
Trading environment
Trading conditions in the furniture retail sector continued to deteriorate over the past year as consumer spending remained under pressure from rising costs and high levels of indebtedness. The group’s middle to lower income target market has also been impacted by widespread labour unrest, industrial action, retrenchments and high levels of unemployment.
Lewis Group delivered a competitive performance for the period and the group’s decentralised business model remains a key differentiator in the
current environment.
Trading and financial performance
Group merchandise sales declined by 2.5% to R2.41 billion continuing the slowing trend reported at the interim results and the trading update in
January 2014. Trading became more difficult in the second half of the year, with sales for the third quarter declining by 6.3% and by 3.3% in the fourth quarter.
Revenue increased by 1.8% to R5.28 billion supported by increased financial services income owing to the higher proportion of longer term contracts in the base and selling a wider range of service contracts. Insurance revenue has been impacted by the lower priced insurance offering introduced in May 2013. The gross profit margin of 36.7% compares to 38.3% in 2013.
The operating profit margin of 21.8% (2013: 24.2%) was impacted by higher debtor costs and lower sales growth. Operating profit was 7.9% lower at R1.15 billion.
Headline earnings totalled R818 million, with headline earnings per share 8.6% lower at 921 cents (2013: 1 008 cents).
The directors declared a final dividend of 302 cents per share, maintaining the total dividend for the year at 517 cents.
Prospects
The current difficult trading conditions are expected to continue into the new financial year. New merchandise ranges will be launched in June and innovative acquisition strategies used to attract new customers to the group’s value-for-money product offerings. The focus in this challenging environment will remain on driving credit sales growth, containing costs and improving collections through higher levels of productivity by building on the pro-active approach to collections at store level.
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