Lewis CEO Johan Enslin says SA has a very high corporate tax rate and it would be nice if the furniture firm received some “real value” in return for the taxes it pays, but it “wasn’t banking on it”.
He specified a need for a functional rail system to transport Lewis’s imported furniture from Durban’s harbour and a reliable electricity supply, saying load-shedding has weakened the economy, which dampened consumer demand for its products.
SA firms pay 28% corporate tax, one of higher rates globally.
Enslin was speaking on Thursday at the company’s final results to end-March in which it saw weak growth. Total sales rose 3.1% to R7.5bn and merchandise sales 1.4% to R4.4bn.
“The group’s performance for the 2023 financial year reflects the state of consumers in SA’s low growth [and] high inflationary environment,” said the company, which sells furniture, home appliances and electronic goods.
The firm expects that SA’s tough retail conditions will continue to deteriorate as high inflation, interest rate hikes, greater transport costs and increasing food and energy prices squeeze consumers’ disposable income.
Despite lower earnings, the owner of Beares and Best Home & Electric maintained its full-year dividend at 413c per share even as net profit decreased 15.7% to R407.1m.
The group has not missed paying a dividend in 19 years of being listed, but the share still trades at an almost 50% discount to its net asset value.
Profit was down despite Lewis releasing R87m in provisions back into the business, as it had set aside more money than it needed to for expected bad debt during the Covid-19 pandemic.
Over the past year, credit sales grew 18.1% while cash sales fell 16.3%. Credit sales accounted for 59.9% of total merchandise sales, growing 8.5 percentage points.
It expects the appetite for credit to continue as customers feel the pinch.
Enslin said Lewis does not foresee sales growth in the new financial year.
“You will see that there is a possibility that the group will actually move sideways in 2024. And that return on equity will not expand during the next financial year.”
He said he expects the country will record zero economic growth this year.
Despite the tough economy, the business reported the highest percentage of accounts in good standing thanks to improved debt collection. It is using more debit orders, rather than relying on customers to pay in-store each month.
“The percentage of satisfactory paid accounts increased to a record level of 80.4%, improving significantly from 68.4% five years ago,” Enslin said.
The company said it expects 36% of debt not to be repaid, down from its projection of 40% during the pandemic when many customers could not pay accounts in-store as the shops were closed due to government regulation.
Lewis’s chain store UFO sells for cash only, which saw it struggle with sales down 12.5% and a required impairment of R91m, which meant the middle-class division business recorded a loss.
The reason the 43-store UFO business struggled is that it put up prices due to high shipping rates as 65% of its furniture is imported. New locally made furniture did not resonate with customers.
The large lounge suites mean only eight to 10 sets fit in a container, meaning UFO was badly affected by an at least a tenfold increase in shipping prices during the global supply-chain chaos of the pandemic. Enslin said shipping rates are 70% lower than their worst during the outbreak and UFO will benefit from these lower costs.
Lewis will also continue with its share buybacks, having bought back more than 40% of its shares and returned R1.1bn to shareholders since 2017.
Headline earnings per share, a common profit measure in SA that excludes certain one-off items, grew 1% to 857c, higher than it would have been were it not for the buybacks, which reduce the number of shares on the open market.
Lewis’s share price gained the most in seven weeks, up 4.3% to R41.
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