Lewis delivered excellent results in FY25, with strong top-line growth driven by increased credit sales and the addition of the Real Beds acquisition. While some headwinds persisted in the macroeconomic environment, LEW’s gross profit margins benefited from the stronger rand, lower shipping costs and the normalisation of rail transportation.
The Traditional brand segment performed well, aided by aggressive footprint expansion, which exceeded the number of stores guided by management. This translated into space growth of c. 1.9% y-y, with trading densities continuing their strong momentum, rising c. 10.8% y-y off a high base. The newly formed Speciality segment performed well, boosted by the addition of Bedzone and Real Beds. UFO is also showing signs of a recovery, turning a small profit in FY25.
The debtor book remains healthy, despite a slight increase in bad debts and a marginal decline in collection rates. The response has been to slow the process of application approvals. However, the book’s quality is highlighted by both non-performing loans and arrears as a percentage of the gross debtor book, which declined in FY25. We think LEW’s decision to cut the impairment provision was made primarily because bad debts as a percentage of the gross book fell to just 11.6%, with management satisfied that these metrics provide LEW with sufficient headroom to continue investing in the book.
The repurchase programme, which has been successful in delivering returns to shareholders, will remain on hold as management believes the shares are not liquid enough to continue at this stage, despite their receiving permission at the previous AGM to continue repurchases. We believe this does provide LEW with the opportunity to shift capital allocations to store rollouts and refurbishments, while also potentially returning cash to shareholders through increased dividends.