Lewis buys Ellerines, Beares stores to expand African footprint

Furniture retailer Lewis Group [JSE:LEW] announced on Monday that it has acquired 62 Ellerines and Beares stores in southern Africa for a purchase price of about R250m.

The stores are located in Botswana (25 stores), Namibia (21), Lesotho (10) and Swaziland (6).

According to Lewis CEO Johan Enslin, the acquisition of these Ellerines and Beares stores will enable Lewis to expand and diversify its southern African footprint. The group will then have a total of 786 stores.

“We will not only gain access to new segments of the furniture retail market, but also expand our existing customer base in each of these countries. Both Ellerines and Beares are well established retail furniture businesses across southern Africa,” explained Enslin.

He added that Lewis was one of the first South African retailers to expand into neighbouring countries in the late 1960s. The group currently has 62 stores in these four countries, which generate about 20% of the group’s operating profit.

“We believe Beares is a scalable brand with good growth prospects. The acquisition of the Beares business in South Africa from Ellerines in late 2014 has allowed the group to attract customers in higher income segments,” he said.

The transaction is subject to standard regulatory and competition approval in the four countries and is expected to be implemented by the end of February 2016.

Also on Monday, Lewis Group reported its results for the six months to end-September 2015, with merchandise sales growing by 8.8%.

Enslin said the trading environment became increasingly difficult in August and September owing to the impact of the slowing economy and the group’s decision of an early adoption of the National Credit Regulator’s (NCR’s) affordability assessment regulations in July.

The group’s headline earnings for the six months dropped by R44.5m to R286.6m, with diluted headline earnings per share 12.8% lower at R3.21.

The interim dividend has been maintained at R2.15 per share, “as the business continues to be strongly cash generative and the board remains confident in the group’s medium-term prospects”.

High levels of indebtedness among Lewis’ target market contributed to the credit application decline rate remaining high at 41%. Debtor costs as a percentage of net debtors moved from 6.8% to 7.4%.

On the outlook for the remainder of the financial year, Enslin said current adverse trading conditions are not expected to improve in the short term.

“Consumer confidence remains muted and unemployment continues to impact our target market, with customers in the mining and agricultural sectors being under particular pressure,” he said.

“We continue to invest for growth and will be expanding the store footprint over the next six months. Management is confident in the growth prospects of Beares and we will continue to refine the merchandise offering for the higher targeted LSM market.”

In October Lewis Group announced it is refunding R44.1m to a group of its customers – pensioners or self-employed people – for the cost of loss of employment insurance mistakenly sold to them, together with R23m in interest accrued on this amount.

Enslin said at the time the refund followed an extensive internal investigation by Lewis, which was triggered by the NCR bringing to the company’s attention three such instances. He ascribed it to human error and said it related to less than 1% of all insurance premiums earned by the Lewis Group since 2007.

Fin24 reported in July that a mystery shopping experience by Summit Financial Wellbeing, a company which fights for consumer rights and lobbies for change in the financial services industry, uncovered major breaches of the National Credit Act by Lewis Group.

In July 2014 the failed African Bank Investments [JSE:ABL] indicated that it wanted to sell its loss-making Ellerines unit and in August of that year Ellerine Furnishers announced that it had applied for “voluntary business rescue” to obtain temporary protection from creditors.

Abil bought Ellerines in 2007 for R10.6bn to widen its product offering to include furniture sold on credit.

In mid-morning trade Lewis shares were down 3.8% to R59.50. Source: Fin24