Lewis (LEW) – Local is Lekker (for GP margins)

Lewis’ debtors’ book showed significant improvement prior to the lockdown with its satisfactory-paid customers increasing in proportion. We believe some of the COVID-19 provisions raised may be released in the coming year, and reduce debtors’ costs. We show how LEW manages to achieve a high margin in its traditional furniture division despite the significant merchandise of the low-margin audiovisual category. There is limited upside for gross profit margin expansion in the current environment, however, we think there may be opportunities from localising its supplier base. We think incorporating INspire into Beares can benefit both brands by expanding INspire’s customer base and improving trading densities for Beares stores.