Lewis looks to INspire for more growth. Following the acquisition of UFO, Lewis has launched call centre and online

business INspire, which targets middle- to high-income customers in urban

areas.

Lewis Group says it's seeing the early benefits of its diversification

strategy, with first-half sales rising strongly from a year ago. The furniture

retailer has expanded its target market to include higher income groups with

last year's acquisition of United Furniture Outlets (UFO).

It now plans to attract more middle- to high-income customers in urban areas

using call centres and online shopping with INspire. The business offers

linen, bedding, tableware, cookware and small electrical appliances. Although

it got off to a slow start, with sales of 4.2 rand million for the four months to

end-September, Lewis says it's starting to gain momentum.

Group merchandise sales rose 25.9% to 1.6 rand billion, boosted by UFO. Stripping

out UFO's 230 rand million contribution, merchandise sales rose 8.1%, with

comparable stores up by 7.8%. Cash sales increased by 72%, primarily driven by

UFO, which is a cash retailer. Credit sales increased by 4.2%.

Revenue rose 11.2% and by 2.4% excluding UFO. Other revenue, which includes

finance charges, initiation fees, insurance premiums and services rendered,

declined by 2.8% mainly due to lower credit sales in prior years which limited

annuity income as well as the adverse impact of regulatory capping of credit

insurance. This also had the effect of squeezing the group's operating margin

to 6.7% from 7.2%. Headline earnings increased by 4.5% to 150 rand million and

headline earnings per share rose 10.7% to 180.8c. It's increased its interim

dividend by 5% to 105c per share.

Debtor costs declined by 20.8% over the prior period as collection rates

improved to 77.2%. Following the adoption of the IFRS 9 accounting standard,

which takes a forward-looking approach to expected credit loss impairments

rather than the incurred loss model of IAS 39, the group has increased its

total balance sheet impairment provision by 49% to 2.42 rand billion.

Lewis said it expected its stores in rural areas, in particular, to benefit

from the change in the affordability assessment regulations of the National

Credit Act, which enable self-employed and informally employed people to again

apply for credit.

While it will take time before many of these individuals re-enter the credit

market, sales to this customer category are encouraging and early payment

performance is satisfactory," Lewis said. "so it stands out better."

The retailer's store base increased to 779 in the first half of its financial

year as it opened 14 new stores and closed 8 stores. These include 494 Lewis

stores, 133 Best Home and Electric outlets, 119 Beares, and 33 UFO stores. It

plans to open a further six stores by the end of its financial year.

Its shares closed 9.7% higher at 30.94 rand yesterday.

> Lewis group. Very good results. Just completed takeover of UFO stores and

massive increase in bad debt provision because of accounting policy change.

Share up 6%

>

> -- Wayne McCurrie (@WayneMcCurrie) November 21, 2018