Johannesburg - Furniture group Lewis yesterday flagged a decline in headline earnings a share for the year to March, which are expected to decline by as much as 29 percent as it grapples with the depressed economic environment.
In its statement, Lewis blamed a tough operating environment for its woes.
It said headline earnings a share would be between 24 percent and 29 percent lower than the 845c reported for the prior year. Headline earnings a share for the period were expected to be between 642c and 600c.
“Trading conditions became increasingly challenging in the second half of the period owing to the further slowdown in the economy, higher levels of unemployment in the group’s target market and the introduction of the National Credit Regulator’s (NCR) affordability assessment guidelines, which negatively impacted credit sales,” the company said.
One out of every four adults of our population is unemployed, while an average of two out of every four of our youth is unemployed. The Quarterly Labour Force Survey revealed this month that unemployment was at 26.7 percent in the three months to March, up from 24.5 percent the previous quarter.
Impacted
Lewis also indicated that trading in the fourth quarter had been further impacted by aggressive discounting by a major competitor ahead of store closures.
The NCR referred Lewis Stores and Monarch Insurance to the National Consumer Tribunal last year, following allegations of breaches of the National Credit Act arising from the sale of loss of employment insurance, disability cover to pensioners and self-employed consumers.
The company said its decision to move from term to monthly insurance policies in all three trading brands would significantly reduce the level of capital required by the group’s wholly-owned subsidiary, Monarch Insurance.
“As part of this process a large portion of the equity and bond portfolio has been liquidated to further de-risk the business in light of a potential sovereign rating downgrade. This has resulted in investment income for the period increasing by R452.6 million over the prior year,” the company said.
It said this had benefited earnings a share, which were expected to increase by between 17 percent and 22 percent over the 908c reported for the prior year. But this would not impact headline earnings. Earnings a share were expected to be between 1062c and 1107c.
Profit margin
After increasing by 8.8 percent in the first half, merchandise sales declined by 2 percent for the second half and were 2.9 percent higher for the period. Revenue for the period increased by 2.2 percent.
The gross profit margin strengthened over the period while operating costs, excluding the Beares acquisition, continue to be tightly managed. Debtor cost growth at 17.1 percent was similar to the level reported at the interim results. Lewis last year acquired 62 Beares and Ellerines stores in southern Africa for R250 million to expand its African footprint. Results will be released next week.
Yesterday Lewis shares gained 0.74 percent to R47.40.
BUSINESS REPORT