Lewis Group has been listed on the JSE for just more than 20 years, and in terms of capital gain during that time it hasn’t been a great performer.
The market has thus largely neglected this superbly managed company and market capitalisation is at a relatively small R4.3bn. The share doesn’t trade much either, and its institutional following is therefore limited to a handful of specialist players. It is a pity, because Lewis’ performance has been nothing short of outstanding over the years.
There are other reasons why institutional investors don’t like furniture stocks, not least the fact that many furniture companies historically had volatile existences. One only has to look at furniture stocks of old such as Rusfurn and Profurn for examples, which were mired in controversy. Or JD Group, which got caught up in the Steinhoff saga.
During this time Lewis just kept its head down and did what it was good at — serving the lower end of the consumer economy with mainly credit-driven furniture and appliances. Even during Covid-19, when many stores were forced to close due to the pandemic, Lewis managed to rebound strongly as people beautified their residences to make working from home more comfortable.
This is reflective of Lewis’ “can-do” attitude. No matter what has been thrown at the company externally, be it freight problems from the Far East or extremely high interest rates, the management just stoically gets on with the job and makes a plan to work around it. No whining, no excuses. Just action.
If the market refuses to place a decent rating on Lewis shares, Lewis management have taken a policy decision to buy back their own shares when the discount to net asset value is sufficiently large, to enhance shareholder returns. Since listing in 2004 Lewis Group has bought back about 48% of its own shares.
Strong sales
At a macro level, according to Stats SA furniture and appliance sales have been very strong for the past 18 months. The only JSE-listed entities that reflect this strength are Lewis, Pepkor and Shoprite. Lewis is a pure-play furniture and appliance retailer, while Pepkor is a mixture of clothing, furniture and appliances and Shoprite has a small exposure via its OK Furniture brand. Shoprite is in the process of disposing of its furniture businesses to Pepkor.
For the year ended March 31 Lewis recorded outstanding results. Group revenue rose 13.5% to R9.3bn, while merchandise sales rose 9.2% to R5.1bn. Credit sales comprised 68% of total sales, up from 66% the previous year. Credit sales rose by 12.1%, while cash sales grew by a more subdued 3.4%. The gross profit margin was a strong 43.4% and the operating profit margin was at 22.7%.
Headline earnings per share rose by 60.3% to R14.83c and a final dividend of 500c per share was declared, making 800c for the year. Return on equity leapt to 15.4% from 9.3% previously. The balance sheet is clean and gearing is an acceptable 36.6%, up slightly from the previous year’s 31.7%. The debtors’ book is healthy, with satisfactory paid customers at a record high of 83.5%.
These results are among the strongest in the retail sector, and yet the Lewis share price is still below its record high of just less than R100, set in May 2015. And while Lewis is unlikely to repeat this year’s outstanding results in financial 2026, headline earnings and dividend growth should remain strong.
Lewis thus presents a conundrum for investors. At the current share price of R83.39, the price to earnings ratio is a low 5.6 times and the dividend yield is an attractive 9.6%, so its main appeal is to value investors, who covet the sustainably high dividend yield. Though the share price should rise significantly to reflect the outstanding metrics of this share, history suggests it will merely continue to languish.
• Gilmour is an investment analyst.
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