Nompumelelo Magwaza
SHARES in furniture retailer, Lewis Group, rocketed to a record high yesterday after issuing a trading update that pleased investors.
Lewis’ shares climbed as much as 9 percent to R89.90 before closing yesterday up by 4 percent at R85.90.
South Africa’s second-largest listed furniture seller was showing signs of improvement which could only get better in time as its competitor Ellerines wound up its business, retail analysts said.
In its trading update, Lewis said revenue for the nine months to December grew by 4 percent and merchandise sales were up 3 percent.
This was an improvement on the revenue growth of 1.6 percent and merchandise sales decline of 3.5 percent reported for the six months to September 2014.
“Trading conditions remained challenging with continued weak consumer demand and constrained employment still evidence,” it said.
However, the group’s numbers for the quarter leading to December showed an improvement of 8 percent in revenue with merchandise sales up by 12 percent.
“The improved trading for the quarter ended December was driven by higher levels of promotional activity and the contribution from the newly acquired Bears stores during December,” said Lewis.
The group bought 63 Bears Furnitures stores from Ellerines for R93.7 million last year.
Mark Hodgson, an analyst at Avior Capital Markets, said Lewis’ numbers showed a bit of an improvement in terms of revenue, merchandise as well as the collections in term of bad debt costs.
“Lewis isn’t out of the woods yet, but its outlook is improving. The drop in petrol prices bodes well for the retailers,” he added.
The drop in oil prices “will have a number of positive impacts on the South African economy, starting with the consumer and reduced inflation”, Johann Els, a senior economist at Old Mutual Investment Group, said.
Debtor’s costs for the nine months increased by 25 percent below the increase of the 27 percent reported at the September half-year. “The trend is going in the right direction, even though there is gradual movement coming through,” said Hodgson.
He said Lewis would only start seeing the benefits of Bears stores and the Ellerines wind-up in the group’s 2016 financial results.
Chris Gilmour, an equity analyst at Absa Investment, said compared to other furniture retailers, Lewis had showed some resilience.
However, Gilmour was of the view that OK Furniture, which belongs to Shoprite, performed far better than any of its competitors. He said Lewis’s share price was impacted on by the investors’ sentiments that Lewis was still going to perform better in the future.
Gilmour was concerned about Lewis’s number for the quarter to December, saying: “If one stripped out Bears, the numbers will not be the same. There is no like-for-like numbers to make a proper comparisons.” – Additional reporting by Bloomberg