Our opinion on the current state of LUX
Luxe (Previously called Taste Holdings) consisted of two businesses - a food franchisor and a luxury goods retailer. It had master franchises in Southern Africa for Starbucks and Domino’s. The luxury retail division consists of the jewellery chain NWJ, Arthur Kaplan Jewellers and World Finest Watches. A rights issue raised R398m through the issue of 376m shares at 90c and resulted in Riskowitz Value Fund (RVF) ending up with 64,5% of the company. Riskowitz has also provided it with a R200m loan. Despite this, the company had to do another rights issue, this time to raise R132m at a price of just 10c per share. Only 18% of shareholders took up the rights with the balance being taken up by Riskowitz and associate underwriters. This shows the enormous destruction of value that has taken place in this company. The effect of the rights issue has been to give the RVF more than 90% of the shares - which will enable it to delist the company. In our view, this company has suffered continuously from a lack of focus. The newly appointed CEO, Duncan Crosson, is selling off the company's food businesses and focusing on its jewellery business. In its results for the six months to 31st August 2021 the company reported revenue up 64% and a headline loss of 24,6c compared with a loss of 101,7c in the previous period. The company said, "Half year same store sales were -8.3% compared to the corresponding period in 2019 and +60.1% compared to 2020. September results were pleasing with a strong recovery compared to 2019 at +13% and +5% compared to 2020. Online sales grew 236% (+174% on a comparable basis) for the half year." We think it may be difficult to turn this company around in the current unfriendly economic environment, but as the economy improves their sales can be expected to pick up. Competition is stiff in the retail jewellery business in which the company trades. Crosson asserts that there is still a profitable and viable business in the jewellery business. On 16th March 2020 the company announced that it was liquidating the subsidiary which owned the Domino’s Pizza franchise in order to focus on the jewellery business. This involved writing off R450m. On 15th October 2021 the company announced that 5 of its 7 board members had resigned - 3 non-executive and 2 executives. We believe that it would be wise to wait until this share has established a track record before investigating further. The share is now thinly traded with only R52 000 worth of shares changing hands on average every day. This increases the risk. On 1st July 2022 the JSE warned that Luxe had missed the deadline to publish its financials within 4 months of its financial period end. On 18th July 2022 Luxe reported that two of its directors had resigned. In a trading statement for the year to 28th February 2022 the company estimated that headline earnings per share (HEPS) would be between 31,49c and 39,52c compared with a loss of 80,3c in the previous period. On 2nd August 2022 Business Day said that Luxe would have to re-state its financials for a number of years after discovering accounting errors. On 5th August 2022 the share was suspended because it had failed to publish its financials for the year to 28th February 2022 within 4 months of its year-end. In a quarterly update on 19th December 2022 the company said, "As negotiations are still in progress, the cautionary announcement was renewed on 31 October 2022 and again on 12 December 2022". On 19th May 2023 the Business Day reported that Luxe had liquidated its jewellery businesses without informing the market as required by the JSE rules. On 23rd May 2023 Business Day reported that Luxes’ creditors had applied to court for its liquidation. The Business Day reported that it had been placed in liquidation on 26th September 2023.
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