November 21, 2018 / 6:54 AM / a month ago

UPDATE 1-South Africa's Lewis H1 earnings gain on upbeat sales growth

(Adds details on sales, CEO quote)

JOHANNESBURG, Nov 21 (Reuters) - South African retailer Lewis Group Ltd reported a 10.7 percent rise in half-year earnings on Wednesday, driven by strong merchandise sales growth and early benefits of its diversification strategy.

The furniture and appliance provider, which caters to middle- to low-income consumers, said headline earnings per share (HEPS) for the six months ended September climbed to 180.8 cents from 163.3 cents.

Headline EPS is the main profit gauge in South Africa that strips out certain one-off items.

The retailer has been diversifying across market segments and retail channels in order to access higher-income consumers and attract online shoppers.

Merchandise sales were boosted by the recent acquisition of United Furniture Outlets (UFO), and surged 25.9 percent to 1.6 billion rand ($113.63 million).

UFO contributed sales of 230 million rand for the six months following the successful integration of the brand into the group.

Last year, Lewis acquired UFO, a cash retailer of luxury household furniture, to diversify its target market and access higher-income customers, while increasing the cash-to-credit sales mix.

Cash sales account for 43 percent of the total group sales compared with 31 percent in the year-ago period, it said.

The launch of omnichannel INspire this year marked the group’s entry into the home shopping market with an extensive product offering across linen, bedding, tableware, cookware and small electrical appliances.

After a slower-than-expected start, INspire reported sales of 4.2 million rand for the four months ended September, the firm said.

“Our strategy is to attract customers into the Living Standards Measure (LSM) 4 – 8 categories to extend the group’s presence in urban areas,” Chief Executive Johan Enslin said in a statement, referring to INspire.

LSM is a manner of segmenting the South African market. It categorizes people according to their living standards, with 10 being the highest and 1 being the lowest.

More retailers in South Africa are investing heavily online - a market where trading is shifting from brick-and-mortar stores to online retail.

Online shopping’s share of total retail sales in South Africa is still hovering around 1 percent. However, certain barriers such as lack of internet access are being pulled down, while online shoppers are drawn to a more convenient form of shopping.

$1 = 14.0808 rand Reporting by Nqobile Dludla, Editing by Sherry Jacob-Phillips

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