Global Credit Ratings (GCR) has upgraded Lewis Group’s outlook from stable to positive.
Lewis’ competitive position is underpinned by a particularly strong market share in the lower LSM (living standards measure) consumer segment, where its value positioning in consumer durable products and consumer finance division remains appealing even through weak economic cycles, the agency said.
“While Lewis has diversified somewhat into the higher-income segment and cash sales through the UFO and Real Beds brands, the ratings remain constrained by its relatively smaller size and narrow sales concentration compared with broader retail peers in a highly competitive market,” GCR said.
Lewis’ stock has gained 42% over the past 12 months.
Rivals have posted a mixed bag of gains in the rolling year. HomeChoice shares rose 49%, while Pepkor, whose brands such as Russells, Bradlows and OK Furniture give it a strong presence in the home goods market, grew 37% over the same period.
Other retailers with partial but meaningful exposure to the furniture and home improvement space have fared worse, with Mr Price up just 1.7%, and both TFG and Woolworths seeing share price declines of 3% and nearly 20%, respectively.
Despite the slower short-term momentum, Lewis has still outperformed peers over a five-year period, with its share price surging more than 470% as demand for credit-led furniture retail remained resilient after the Covid-19 recovery.
According to Fortune Business Insights, SA’s furniture market is projected to reach $2.57bn in 2025, growing steadily through to 2032. Urbanisation, rising demand for multifunctional and space-saving furniture and the shift to hybrid work models are driving this evolution.
The Covid-19 pandemic, while disruptive to manufacturing and retail operations, also triggered changes in consumer buying habits and expectations.
Lewis, too, has had to adapt to a challenging environment. In its latest annual report, the group flagged persistent pressure on consumer spending due to high unemployment, geopolitical risks and uncertainty surrounding the government of national unity. It cited supply chain disruptions, rising regulatory costs, and raw material price volatility as challenges.
Yet despite these headwinds, Lewis’s ability to manage credit risk, grow collections and expand its store footprint has helped it remain resilient.
The group has increased its footprint to more than 900 stores and has steadily expanded its credit book, while keeping repayment behaviour in check. This momentum helped drive record earnings in the year to end-March.
Lewis reported strong growth in both merchandise and financial services income, underpinned by an increase in credit sales and more efficient debt collection. Credit customers in good standing rose helping to support profit margins and offset broader pressures on consumer spending.
Despite taking on more debt to support growth, Lewis has maintained conservative leverage and has access to sufficient funding facilities. Its monthly cash collections and buffer in undrawn credit lines have kept liquidity at healthy levels, with GCR expecting coverage to remain above 2x over the next two years.
GCR said continued earnings growth and stable credit performance could lead to a future ratings upgrade. However, any deterioration in revenue, collections or liquidity could place pressure on the current rating.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.