Motheo Tlhagale
Lewis - Not one for the Bear(e)s
Lewis Group was founded in Cape Town in 1934 and has grown to become a leading retailer of furniture, home appliances, and electrical goods in southern Africa. The company listed on the Johannesburg Stock Exchange (JSE) in 2004. At the end of September, the company operated 958 stores across southern Africa - the bulk of which are located across South Africa.
Lewis operates mostly as a credit retailer but has some cash retail exposure as well. The company also offers other financial service products to its clients, including insurance.
Lewis has been acquisitive over the past decade or so, acquiring Beares in 2014, UFO in 2018 and Real Beds in 2024. The business is operated through two segments - Traditional (which includes the Lewis, Best Home & Electric, and Beares brands), and Speciality (comprising UFO, Bedzone and Real Beds). Most of the company's sales come from furniture (~58%) followed by appliances (~28%), and audiovisual (~14%).
A focused strategic framework
Lewis Group's overarching strategy is to be a dominant retailer of home furnishings and appliances across all market segments in southern Africa. This is built on three core pillars:
-
Mastering the credit retail model by prudently expanding its base of credit customers while maintaining high-quality collections.
-
Driving growth through a continuous expansion and diversification of its physical store footprint, targeting different income groups with specific brands for both credit and cash sales.
-
Maintaining a disciplined capital allocation strategy that balances reinvestment into the business with delivering substantial returns to shareholders through dividends and share buybacks.
The effectiveness of this strategy is clearly demonstrated in the group's 2025 financial year results, which serve as a compelling scorecard for its execution. The commitment to growing the credit business was validated by the 14.5% increase in the debtor's book, which was achieved while simultaneously improving the quality of that book to a record 83.5% satisfactory paid customer level. Finally, the group's focus on shareholder returns was powerfully underscored by a 60% increase in the total dividend and the continuation of its long-term share repurchase programme, confirming that their strategy of delivering tangible value.
Lewis has unmatched expertise in credit retail
Lewis operates in a highly fragmented and competitive retail landscape, facing a diverse set of rivals across its various market segments. In its traditional credit retail space, the group's primary competitors are other national furniture chains that offer in-house credit, most notably those within the JD Group such as Bradlows and Russells. Beyond this core battleground, Lewis Group competes with a broader array of cash-based and value retailers like Mr Price Home. Furthermore, with its strategic expansion into specialised categories through Bedzone and Real Beds, the group now also contends with dedicated bedding retailers like Dial-a-Bed. This multi-front competition requires a sophisticated strategy to defend and grow market share across different consumer profiles and payment types.
Despite this intense pressure, Lewis Group leverages several key competitive advantages to maintain its market leadership. Its most significant strength lies in its sophisticated and proven credit risk management, which allows the company to profitably serve a market segment many competitors find too risky, a fact underscored by its high rate of satisfactory paying customers.
This is supported by an extensive physical store footprint, strategically located near its target customers in both urban and rural areas, creating a logistical and relationship-building advantage that is difficult to replicate. This decentralised, store-based model fosters strong community ties and effective collections.
Shareholder returns have been notable
Since listing, Lewis has paid uninterrupted dividends. The growth in the dividend was interrupted during the Covid-19 period but resumed in FY21 and has averaged 25% per annum since.
The cash return profile over the last five years has been complimented by a share buyback programme. Lewis has been consistently buying back shares since 2018. Aggressive share repurchases were undertaken through the 2023 financial year with buybacks slowing slightly over the last two financial years. Shares outstanding have fallen from a peak of 95.1 million shares in March 2018 to 51.7 million currently.
Financials
-
Since FY19 to the end of March, Lewis has managed to grow revenue by a 7.1% compounded annual growth rate (CAGR). This includes a slightly slower growth period during the Covid-19 period, and the commensurate recovery. In FY25, Lewis grew its top line by 13.5%. This slowed to 11.3% in 1H26 and 11.0% in 9M26 and was ascribed to pressure on consumer discretionary spending but helped by better credit sales growth.
-
To this end, the debtor book grew strongly. Lewis has been more aggressive in extending credit but positively, credit quality metrics have held up very well.
-
Merchandise sales also slowed but was offset by other businesses that were complimented by higher credit sales, including insurance.
-
The group's gross profit margin has expanded over time with a step change in FY25 (from FY24) helped by lower negotiated shipping rates on imported merchandise in 2H25 and a stronger rand, partially offset by a promotionally driven sales mix.
-
On a normalised basis, operating profit has grown by 17.6% CAGR over the last six financial reporting periods. In FY25, operating profit grew very strongly - a function of a higher gross margin, tight administrative cost control and lower debtor's costs due to the active management of credit quality.
-
The company has taken on some debt over the past few years to fund acquisitions and store expansion, and to cover the expansion in the debtor's book. As a result, net finance costs have risen over time.
-
Headline earnings have increased by 16.0% CAGR over the last six years, while headline earnings per share (HEPS) have increased by 25.4% CAGR - complimented by share buybacks. In FY25, HEPS was up 53.5% on very strong operating profit margin expansion. In 1H26, HEPS grew by 16.8% y/y.
-
As noted in the above section, dividend growth has been notable over time, and we would expect the payout ratio to remain at current levels in the absence of any major economic shocks.
-
We have taken a conservative approach in forecasting revenue and expect 16% to 20% growth per annum over the next three years.
-
We assume the company does not repurchase shares in the near term and maintains a dividend payout ratio of at least 55%. Under these assumptions, earnings are expected to grow by approximately 18% in 2027 and 2028, following low-single-digit earnings growth in 2026.
Summary investment case
-
With over 900 stores across southern Africa, Lewis Group has an unparalleled physical presence, particularly in the peri-urban and rural areas where its core customers are located. This extensive network acts as a significant barrier to entry for potential competitors and provides a key advantage in customer service, brand visibility, and collections.
-
The executive leadership is characterised by exceptional stability and deep industry knowledge, with most senior leaders having risen through the company ranks over decades. This ensures strategic consistency, operational excellence, and an intimate understanding of the business and its customers through various economic cycles.
-
Lewis Group is not a single-brand entity. Its portfolio strategically targets different market segments, from the core credit-based Lewis and Beares brands to the upmarket cash-based UFO and the specialist Bedzone and Real Beds chains. This diversification provides resilience against economic shifts and allows the Group to capture a wider share of the total home goods market.
-
With its strong balance sheet and proven operational model, Lewis Group is well-positioned to acquire smaller, less-resilient competitors who may be struggling in the tough economic climate. This offers a path to rapidly increase market share and expand its store footprint.
-
The group has a vast repository of customer data from its credit operations. This allows it to extend credit in a dynamic way and has helped elevate the company to one of the best and most effective credit retailers in the country. There is also a significant opportunity to better leverage this data for more targeted marketing, personalised offers, and improved online credit application processes, thereby enhancing customer loyalty and driving sales more efficiently.
-
The company is set for strong momentum, with revenue expected to grow 16-20% annually and earnings accelerating meaningfully from 2027. A stable dividend payout of 55% or more supports a resilient, attractive shareholder-return profile over time.
Risks
-
High unemployment, low economic growth, political uncertainty, and constrained consumer spending in South Africa directly impact the group's customers' ability to make purchases and service their debt, leading to lower sales and potentially higher bad debts.
-
The group faces aggressive competition from all sides: direct credit rivals like the JD Group, agile and price-competitive cash retailers like Mr Price Home and Pep Home, and international players. The continued pressure from these competitors could erode margins and market share.
-
The core business model remains heavily reliant on the physical store experience. The group may be vulnerable to more digitally native competitors who can offer a more seamless and lower-cost e-commerce experience, especially to younger, more tech-savvy consumers.
-
The business is highly sensitive to changes in credit regulation, interest rate fluctuations that affect funding costs, and macroeconomic downturns that impact customers' ability to repay debt.
-
Lewis screens as compelling on valuation, trading at a significant discount to our estimate of fair value, despite a resilient operating model and stable cash generation profile. At current price levels, we expect dividend yields of 8% to 12% over the next three years, supported by the group's strong balance sheet and consistent free cash flow conversion. Importantly, Lewis has demonstrated an ability to navigate credit cycles effectively, maintaining disciplined underwriting and protecting returns even in softer consumer environments. This combination of undervaluation, high prospective yield, and steady operational execution positions the stock as an attractive income and value opportunity within the sector.
Valuation
Lewis screens as compelling on valuation, trading at a significant discount to our estimate of fair value, despite a resilient operating model and stable cash generation profile. At current price levels, we expect dividend yields of 8% to 12% over the next three years, supported by the group's strong balance sheet and consistent free cash flow conversion. Importantly, Lewis has demonstrated an ability to navigate credit cycles effectively, maintaining disciplined underwriting and protecting returns even in softer consumer environments. This combination of undervaluation, high prospective yield, and steady operational execution positions the stock as an attractive income and value opportunity within the sector.
