Lewis Stores jostling for dominance

It is a time of extensive reorganisation in the furniture industry. For the bold, there are opportunities for the taking. For the cautious, there is the risk of being left behind.

So is he up to the task? And is Lewis, traditionally a conservatively run company, going to take more risks to earn more rewards?

Enslin smiles. “Our strategy is working. We believe in the customer-centric approach and will never centralise our operations.”

The group is stepping out with plans to open 20-25 new stores this year across its three trading brands: Lewis, Best Home & Electric, and Lifestyle Living. Most of these will be the new, small-format Lewis Stores. As a pilot at Orange Farm, south of Johannesburg, the smaller store traded more profitably than the conventional store. The goal is to grow to 700 stores from 535 within five years.

Lewis has a window of opportunity while Ellerines and JD Group disentangle their retail and financial service businesses.

Enslin began his career at Lewis in Kimberley aged 19, and is a dyed-in-the wool retailer in the Smart mould. He has no intention of changing Lewis's business model. “Lewis is about the hard sell and there is always a plan [in this case to capture customers lost by competitors],” he says.

Though the company's recent results were “not enough to break open the champagne”, according to Smart, there was reason for optimism. Revenue increased 5.9% to R3,8bn, while operating profit declined 9.7% to R840m. Diluted headline earnings per share declined to 634c from 688c. “The good news is the group generated strong cash flows and maintained its dividend,” says Smart. Merchandise sales grew by 1.6% to R1,9bn.

The financial stress on consumers meant the group's debtors' costs increased from 6.5% to 10%. This was one of the main reasons for the decline in headline EPS. But the figure is lower than Ellerines', at 17%, and JD Group's, at 19%.

African Bank, which bought Ellerines in January 2008 to develop closer synergies between its lending activities and consumer demand for credit in furniture purchases, is finding the going tougher than expected. Ellerines reported headline earnings of R190m for the six months to March, against R153m in the previous three-month period. Headline earnings per share were 62c for the six months to March, Merchandise sales, at R2,3bn, were 20.5% lower than the comparable period last year.

But the group is in the middle of a huge restructuring project, cutting stores, staff and brands.

“The reality is [the turnaround] will take longer than expected,” says CEO Tony Fourie, who took over from Peter Squires in February last year. Instead of taking three to four years, the strategy will probably be a four- to five-year strategy now.”

At JD Group, after its restructuring, the company now consists of five distinct business divisions, one being a standalone financial services business.

The group grew its revenue by a modest 2% to R6,8bn for the six months ended February, principally due to the inclusion of Blake and Maravedi for the first time, as well as good performance from Incredible Connection and Abra. Headline losses per share amounted to 18,9c compared with earnings per share of 220c a year ago.

However, chairman David Sussman is confident the cycle is about to turn. “We are seeing some interesting signs. In month seven, top-line sales of the traditional retail group grew by 3% year on year for the first time in many months. In month eight top-line sales grew by over 6%. Now that is very heartening.”

The game, it seems, is on and Enslin just smiles and keeps his cards close to his chest.

Source: Financial Mail

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