Lewis group has flagged global shipping disruptions as its biggest operational hurdle over the past financial year but still managed to lift gross profit margins.
CEO Johan Enslin said the furniture retailer, which imports 35% of its merchandise, faced mounting pressure from soaring shipping costs and limited availability of container space.
“The single biggest operational challenge over the last 12 months was shipping. The shipping market was really in shambles, if I can call it that, during this period. Not only did shipping rates go through the ceiling, the unavailability of space on ships, especially out of China, also played a really big and challenging role.”
Despite this, the group’s gross profit margin strengthened by 30 basis points to 43.4%, aided by lower negotiated shipping rates in the second half of the year and a favourable rand-dollar exchange rate.
“Once again, the target will be set at exactly the same level, a range of 40%-42%,” said Enslin.
“One must basically look at all of the different levers in the business. And we believe that if we run the business at slightly lower GP levels at certain points, that will have a positive impact on top-line and ultimately the goods will still be balanced in that manner.”
While Lewis has not yet been directly affected by current trade tension between the US and China, Enslin acknowledged potential future risks.
“At this point in time, the shipping market is still quite stable. The only thing that is starting to develop, which is quite recent, is a container shortage on the China side of things. And this is basically because of Trump’s 90-day reprieve on tariffs. A lot of US customers have actually called their orders forward … but for the Lewis group, at the instant, no impact on that front as yet.”
Enslin said the group remained cautious amid geopolitical uncertainty and domestic political instability. Still, it plans to maintain its return on equity above 15% and pursue expansion through new store openings and targeted marketing.
A combination of robust growth in credit sales, expanding gross profit and improvement in the quality of the debtors portfolio have boosted Lewis Group’s full-year earnings, it said on Thursday.
The furniture and home appliance retailer reported a 13.5% rise in revenue increased to R9.3bn for the year to end-March, with operating profit up 66.9% to R1.2bn.
Other revenue, consisting of effective interest income, ancillary services income and insurance revenue, benefited from the strong credit sales growth in recent years and increased by 19.1%.
The quality of the group’s debtors’ book improved further, with satisfactory paying customers reaching a record 83.5% and a solid collection rate of 78.9%. Non-performing accounts reduced from 5.5% to 4.1% of all credit customers.
The store footprint was increased to 918, with the opening of a net 33 new stores and an additional 16 stores acquired through the purchase of Real Beds.
Real Beds, a cash retail bed specialist with 12 stores in SA and four in Botswana, has been successfully integrated into the group’s operations.
During the year, 170 stores across the portfolio were refurbished to ensure that stores remain modern and appealing to promote merchandise.
Management plans to open a minimum of 20 new traditional retail stores and 20 specialist bed stores in the new financial year.
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