Luxe Holdings on road to recovery as profit improved by R55.2 million

The company saw significant improvement after the sale and unbundling of its food division.

Luxe Holdings (formerly Taste Holdings) has seen a R55.2 million improvement in its 2020 financial year ended 29 February operating profit to R12.2 million after it reported a loss of R43 million in the previous year. 

Luxe Holdings CEO Duncan Crosson highlighted the efforts during the year that went into the disposal of the Taste Food brands, namely Starbucks, Maxi’s and the Fish & Chips Co, as well as commencing the liquidation process in March 2020 for the remainder of the company’s food division, which consisted mainly of the Domino’s Pizza brand. 

According to Duncan, the unbundling and winding up process of the food business did not directly affect the luxury goods division, which includes NWJ, Arthur Kaplan and World’s Finest Watches. These brands continued with its focussed approach of restructuring and rebranding, coupled with closing non-performing stores.

“Although our 2020 financial year began with economic and political developments which negatively affected our operating environment, we regard this as a year of progress for the remaining luxury business towards attaining our strategic objectives. The year commenced with a constrained retail environment. In addition, the division continued to be plagued by robberies and suffered losses 3.5-fold over the prior year,” he said. 

He also noted that, although consumer confidence was low with retailers worldwide facing strong headwinds and poor sales, the group began rolling out its new strategy, repositioning and rebranding stores across all three brands from March 2019. This will continue into the new year.

Within the luxury goods division, which is now the core of the company, he said trading performance had improved, driven by positive NWJ corporate same-store sales, gross margin improvement across the business and vigilant cost containment. Cash generated from operations improved by 58 percent. 

However, system-wide sales reduced by 7 percent to R473 million because of planned store closures in NWJ, and Arthur Kaplan and seven stores being refurbished during this period. 

Overall, operating expenses, which included impairments and once-off restructuring and retrenchment costs, decreased by R49 million to total R200 million. 

Duncan also pointed out that the operating loss from continuing operations of R3.6 million represented a R58.3 million improvement. 

He explained that, when the company realised that it could not attain the R700 million needed to reach a positive cash flow and begin to expand its food businesses, the board decided it was in the best interest of the company and all the stakeholders to exit the food business.

Duncan said that the group’s revised strategy, focusing only on luxury goods, had laid the foundation for the business to grow sustainably.

 “We anticipate that the local economy will be under strain due to the impact of the Covid-19 virus, commodity price pressures, Eskom constraints and increased unemployment. Even before Covid-19 became a global pandemic, South Africa was in a recession. As the government provides financial relief to businesses impacted by Covid-19, liquidity challenges, retrenchments and business closures are inevitable. Our planning will take this into account.”

Although there was a dramatic fall off in sales in March when lockdown was announced, pent up demand post-lockdown exceeded expectations with June same store sales up by 12.7 percent. During quarter two, June to August same store sales were -6,6 percent. 

Duncan said that the effect on sales during the lockdown has been severe. “Our experience post lockdown is that community and neighbourhood store locations outperformed major regional shopping nodes. We anticipate that consumer disposable income will worsen over the coming months as debt relief comes to an end, government assistance measures cease and savings are depleted. The consumer environment is likely to be very challenging for the next 12 to 18 months.”

He said that, as Luxe Holdings navigates the uncertainty, the outlook for trading conditions remain materially uncertain. “The prolonged impact of Covid-19 will continue to have a significant impact on the group’s earnings for the financial year 2021 but the extent of this is difficult to predict.”