Credit climate hobbles LewisComment on this story
The increase in Lewis Group’s credit application decline rate did not mean that consumers disliked the retailer’s products, nor did it mean that the store’s credit package was defective, it simply meant that consumers could no longer afford credit, chief executive Johan Enslin said yesterday.
The group, which sells furniture and appliances at Lewis, My Home and Best Home & Electric stores, lifted its credit application decline rate to 38.4 percent in the year to March from 36.5 percent a year earlier.
“Five years ago Lewis had to say no to 25 percent of people applying for credit, today Lewis declines about 38 percent of credit applicants. The biggest challenge is not that people do not want to buy our furniture and it’s not that they are not happy with our credit offer, but unfortunately because of the generally high levels of indebtedness out there, we have to say no,” Enslin said.
If Lewis’s decline rate was still at 25 percent, the retailer would not have had any problems in growing its top-line.
Revenue increased by 1.8 percent to R5.28 billion while retail sales declined 2.5 percent to R2.41bn as trading became more difficult in the second half of the year.
The group’s operating profit margin declined to 21.8 percent from 24.2 percent in the previous period on higher debtor costs and lower sales growth. Operating profit was 7.9 percent lower at R1.15bn.
Despite the slowdown in the consumer economy the group opened a net 17 new stores, bringing the number of stores to 636 at year end.
Like many other furniture retailers, Lewis has felt the impact of the more than four-month-long platinum strike in the North West.
Enslin said Lewis’s stores in the platinum belt had been negatively affected, especially in terms of sales and debt collections.
He noted that the strike had had a spillover effect in the Eastern Cape, where many of the workers on the mines came from.
“But again we are positive and believe that the business model will come back to life as soon as money comes back into the cycle.
“We have an ability to be first in a queue when money is available – we will visit those customers and make arrangement for payments,” he said.
The 30 percent increase in debtor costs was the same level as reported in the interim results.
Debtor costs as a percentage of net debtors moved from 9.4 percent to 11.6 percent. The impairment provision increased from 17.4 percent to 18.6 percent.
“Our strategy in terms of impairing is slightly different because we impair every single account every month and we have been consistently applying one set of formulae since we listed in 2004. Therefore, there is never an unexpected wave of bad debt waiting to hit us,” Enslin said.
A final dividend of R3.02 a share kept total dividends flat at R5.17 for the year.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, agreed with Enslin, saying Lewis’s debtors’ book was well managed. “But in an environment like this, one should expect for the book to deteriorate a bit,” he added.
He said the results were in line with the update issued earlier, with no further negative surprises.
Lewis rose 2.38 percent to close at R64 yesterday.