Johannesburg - Troubled Lewis Group blamed tighter loan regulations for the decline in its credit sales, which hurt the furniture retailer’s profit.
Headline earnings a share fell 26.5 percent to 622 cents in the year to March.
Read: Slower economy hits Lewis's earnings
Lewis, which sells household furniture and electrical appliances through its brands Lewis, Best Home and more recently Beares, said yesterday that adverse economic conditions had constrained consumer spending and this had been compounded by the introduction of the National Credit Regulator’s (NCR) affordability assessment regulations.
Group chief executive Johan Enslin, said: “This is proving a major challenge for many consumers in the group’s lower-to-middle income target market, who are self-employed.”
The company said credit sales for the second half of the year were 10.3 percent lower due to the regulations, which require customers to provide three latest pay slips or bank statements as part of the credit application process.
Group credit sales for the year were 4.5 percent lower, with Beares accounting for 50 percent of the brand’s total sales, while Lewis and Best Home and Electric accounted for 66 percent of total sales on credit.
Christopher Gilmour, an investment marketer and analyst at Barclays Africa Group Wealth and Investment Management, said yesterday that the change to the National Credit Act meant that it was more difficult for certain people to obtain credit, especially the self-employed.
“This, combined with the slowdown in the economy, has resulted in the contraction in volumes. Not a surprise, given the retail sales data that has been showing a slowdown in the furniture and appliances sector for a while,” he said.
The group’s revenue for the year increased by 2.2 percent to R5.8 billion.
The group is also facing backlash from the NCR for allegedly flouting the laws.
The NCR referred Lewis Stores and Monarch Insurance to the National Consumer Tribunal in July for allegedly selling loss of employment insurance to pensioners and self-employed persons in contravention of the National Credit Act since 2007.
An internal investigation established that 15 percent of pensioners and self-employed persons were invalidly sold the policies through human error and contrary policies.
Lewis is refunding R67.7 million in premiums and interest to the affected customers and has opposed the referral, filing detailed answering affidavits to be heard before the tribunal on July 28.
Refunding
Enslin said the company had completed 85 percent of the refunds. “The company takes the allegations seriously and we are co-operating with regulators on an ongoing basis.”
He said Lewis had tightened compliance through the launch of a compliance call centre to ensure customers understood their credit agreements 100 percent before signing on.
Gilmour said: “It looks like the R67m that they paid to people who had been ‘scammed’ is R44m for the capital value plus R23m in interest. So that would appear to be the end of this particular situation.”
The group said merchandise sales increased by 2.9 percent over the prior year, after increasing by 8.8 percent in the first half. The company said unemployment reached a record high during the period and contributed to the 2 percent decline in merchandise sales in the second half.
Sales in the fourth quarter were affected by aggressive discounting by the JD Group ahead of store closures, which would be completed shortly.
Insurance revenue declined 7.3 percent owing to the slower credit sales and the shift from term to lower-priced monthly insurance policies in Beares and Best Home and Electric.
Investors have voted with their feet, with the Lewis share price declining by 40 percent since last year.
Yesterday, Lewis shares closed 2.51 percent higher at R49.40 on the JSE.
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