Lewis Shares Fall Amid South African Furniture Retail Slump

Lewis Group Ltd. (LEW), a South African furniture and household goods retailer, posted its biggest weekly fall since January as bad-debt costs increased and sales declined during the four months through July.

The shares traded 2.4 percent lower at 58.21 rand at the close in Johannesburg, the lowest price since March 31 and the fourth consecutive day of declines. The stock fell 9.7 percent for the week, the most since the five-day period ending Jan. 31.

“Protracted strike action, labor unrest, high levels of unemployment and high levels of indebtedness caused consumers to adopt a cautious approach to incurring debt and to be selective in paying accounts,” Chief Executive Officer Johan Enslin said today in a statement. Debtor costs for the period increased by 30 percent while merchandise sales declined by 0.8 percent, the Cape Town-based company said.

Shoppers in Africa’s second-biggest economy are cutting down on major purchases and defaulting on loans as more than one in four people remain unemployed and prolonged strikes affect growth. Steinhoff International Holdings Ltd. increased its stake in furniture retailer JD Group Ltd. (JDG) to 98 percent to support the company earlier this year. Johannesburg-based JD declined 1.4 percent to 23.76 rand today, extending the year’s loss to 18 percent.

Negative Trends

The increase in debtors’ costs “was a negative surprise for the market after a 30 percent increase in fiscal 2014 and is largely the reason for the sell off,” Mark Hodgson, an analyst at Cape-Town based Avior Capital Markets (Pty) Ltd., said in an e-mailed response to questions. “Investors don’t like uncertainty and the economic trend is on the negative right now, particularly for low-end consumers.”

African Bank Investments Ltd. (ABL) furniture retail unit Ellerines is applying to be rescued after the lender incurred record losses. The South African Reserve Bank put Abil, as the company is known, into administration on Aug. 10 and arranged for banks to underwrite 10 billion rand ($949 billion) of new funds.

“The industry is still going through tough times,” Hodgson said. “I don’t think we should be expecting another Ellerines-style collapse and the demise of a major competitor should be positive for Lewis over the medium term.”

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net John Bowker, Sarah McGregor

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