Over the past seven years, Lewis has grown headline earnings per share at a compound annual growth rate of about 25% and dividends at 21%, while also buying back substantial amounts of stock.
The share price has risen from R31 to R92, a gain of almost 200% excluding dividends. That compares favourably with retail heavyweights Shoprite and Pepkor, whose share prices rose by about 86% and 21%, respectively, over the same period. Yet Lewis still trades on just over five times earnings and offers a dividend yield of around 10%.
The comparison with conventional retailers is slightly disingenuous, though. Lewis is not a straightforward furniture retailer but a hybrid retail and credit business. Roughly half of revenue comes from merchandise sales; the other half comes from interest income and other charges linked to its credit model. About 70% of merchandise sales are made on credit.
That makes the business fairly complex. Lewis has to lend with the discipline, data insight and collections capability of a specialist credit provider, while also sourcing merchandise that is attractive, affordable and aligned with the tastes of its target market.
A pure lender does not need to know whether a lounge suite, TV cabinet or bedroom set will appeal to customers in a particular town. Lewis does. If the merchandise offer is wrong, there is no sale and no loan to write. And with a meaningful portion of sales coming from repeat customers, the quality and value proposition also needs to be strong enough to bring customers back.
This balancing act might explain why so many rivals have struggled or disappeared. Ellerines, once a major force in South African furniture retail, collapsed after years of aggressive credit expansion and operational weakness. Its demise removed a significant competitor and strengthened the position of survivors with better discipline.
Lewis acquired the Beares chain out of that failure, adding scale and locations without having to chase risky organic growth. Today, the bulk of the group’s profits still comes from its three main traditional brands — Lewis, Beares and Best Home & Electric.
The credit book remains the crux of the investment case. In 2026, Lewis grew its debtors’ book by 15.2% while debtor costs improved to 14.3% of gross debtors. Satisfactory paid customers stood at 82.6% and collections at 78.1%, and although the nonperforming loan ratio rose to 5.2%, it remained manageable against a strained consumer backdrop and was well covered by an 87% impairment provision. Lewis is clearly exposed to the credit cycle, but these metrics do not suggest a book being grown recklessly at any cost.
A larger credit book and higher borrowings leave Lewis more exposed if collections deteriorate sharply
Lewis also has one advantage over a pure unsecured lender, namely the threat of repossession. The potential recovery value is probably modest, as used furniture depreciates quickly and is costly to collect, store and resell. But the risk of losing household goods used every day likely supports repayment discipline.
The future risks to the business are threefold. The first is regulation. Lewis already charges close to the maximum permissible interest rate ceiling under the National Credit Act framework, so any adverse change to rules on interest, fees, insurance or other credit-linked charges could squeeze the economics of the model. That regulatory dependency is a valid reason for the market to apply a valuation discount.
The second risk is macroeconomic. The crisis in the Middle East has added pressure to fuel prices, inflation expectations and shipping costs. For Lewis, that cuts both ways. Higher food and transport costs hurt customers’ disposable income and make collections harder, while shipping disruption and higher logistics costs can raise the cost of merchandise, squeezing margins or forcing price increases into a fragile consumer market.
The third risk is competition. Lewis is opposing the proposed combination of Pepkor’s furniture interests with Shoprite’s furniture business, arguing that it would create a much larger rival in the low-income furniture market. By Lewis’s estimate, the merged entity would command about 59% market share and more than 1,100 stores, compared with Lewis’s 976.
The balance sheet also deserves scrutiny. In 2019, Lewis had net cash of about R205m. By 2026, this had shifted to net debt of around R2.2bn, reflecting store expansion and growth in the debtors’ book. The balance sheet is not stretched, but the margin of safety is lower than it was. A larger credit book and higher borrowings leave Lewis more exposed if collections deteriorate sharply.
For that reason, the easy money has probably been made. Lewis is no longer the neglected bargain it was at R31, and its hybrid model deserves a discount to pure retailers. The question is whether a five-times earnings multiple and 10% dividend yield already discount too much. For investors comfortable with the regulatory and credit-cycle risks, Lewis still looks more like a well-managed, cash-generative market leader than the fragile credit retailer its valuation implies.
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