Lewis delivers double-digit revenue surge: A vindication for the Ricardo Portfolio?

Key topics:Lewis delivers 11% revenue growth via credit-led furniture retail modelCredit sales and ancillary income drive outperformance versus peersRising debtor costs offset by strong collections and market share gains.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..BizNews Reporter.Lewis Group, a stalwart of the South African furniture retail sector and a key constituent of the BizNews Ricardo portfolio, has delivered a robust trading update for the nine months ended December 2025. The numbers suggest that despite the lingering pressure on the South African consumer, the group’s credit-led model is firing on all cylinders.For members of the BizNews tribe following the Ricardo portfolio, the update offers reassuring validation of the investment thesis: Lewis is not just surviving the economic cycle; it is growing aggressively through it..Top-Line Resilience.The headline figure is a strong 11.1% increase in total revenue for the period. In an environment where discretionary spending remains constrained, double-digit top-line growth is a standout performance.The growth engine for the period has been credit sales, which increased by 9.1%, significantly outpacing cash sales growth of 2.8%. This shift has seen the credit mix of total sales tick up to 69.4%, compared with 68.2% in the same nine months of 2024. For retailers in this segment, a shift toward credit is a double-edged sword. It drives immediate merchandise sales but increases the balance sheet risk. However, Lewis has traditionally excelled at managing this specific risk, using its credit book not just as a sales enabler, but as a significant revenue generator in its own right.This dynamic is evident in the group's "Other Revenue" line item, which includes effective interest income, ancillary services, and insurance revenue. This category surged by 16.2% for the nine months.When Lewis sells furniture on credit, it secures a long tail of income through insurance and service fees. As the debtors' book grows, this annuity-like income stream swells, buffering the group against volatility in pure merchandise sales. The 16.2% jump here suggests that the "book" is healthy and growing, providing a solid foundation for future earnings..Black Friday and the Consumer Pulse.The third quarter of Lewis’s financial year (October to December 2025) is traditionally the "golden quarter" for retailers, anchored by Black Friday and the festive season. Lewis reported a 7.8% increase in merchandise sales for this quarter, with management citing "strong Black Friday sales across all brands."This acceleration—up from 4.6% y–o-y in Q2—hints that SA consumers might be finding a second wind, or at least that Lewis’s promotional activity is hitting the mark. Comparable store sales grew by 4.9% in Q3, indicating that growth isn't just coming from new floor space, but from higher turnover in existing locations..The Risk Factors: Collections and Debtor Costs.Investors, however, will be keeping a close eye on credit health metrics. The collection rate, arguably the most critical metric for a credit retailer, came in at 78.3%.While management describes this as "resilient" and "satisfactory," it is a slight deterioration from the 79.6% reported in December 2024. It is, however, consistent with the half-year figures, suggesting the decline has stabilised.More notably, debtor costs grew by 14.8%, outpacing sales growth. Management attributes this to the growth in the debtors' book itself and "continued macro-economic pressure." This is the classic trade-off: to grow the top line by 11% in a tight economy, Lewis has had to extend more credit, thereby incurring higher potential bad-debt costs..Context: The Macro Tailwind.While the update highlights "constrained discretionary spending," the broader economic context in early 2026 provides reasons for optimism. With the Rand recently strengthening below R16/$ and inflation largely tamed, expectations for interest rate cuts are firming.Any easing of monetary policy would be a direct injection of liquidity into Lewis’s target market. Lower rates would not only improve the disposable income of existing customers—potentially boosting that 78.3% collection rate—but also make credit more affordable for new purchases..The Growth Gap: +11% vs. Mid-Single Digits.For the BizNews Ricardo portfolio, this validates the specific bet on credit-led furniture retail over pure-play fashion. Here is how Lewis stacks up against sector giants Mr Price and Foschini (TFG). The headline number tells the story. Lewis reported an 11.1% increase in revenue for the nine months to December 2025.Contrast this with the most recent interim data (H1 FY2026) from the sector heavyweights:Mr Price Group: Retail sales grew by 5.5%, with comparable store sales up just 2.1%.(plus they’ve maddened shareholders with a proposed German takeover)TFG (Africa): Sales grew by 5.3%, with like-for-like growth of 4.1%.While we await the festive season updates from the fashion retailers, the trend is clear: Lewis is growing at roughly double the pace of the broader market..The "Cash Crunch" vs. The "Credit Lever".The differentiator is the business model.Mr Price and TFG are predominantly cash businesses. Mr Price, for instance, reported that 88.2% of its sales were cash in its H1 results. This exposes the KZN headquartered business directly to the disposable income crisis; if the consumer doesn't have cash in their pocket today, they don't shop.Lewis, by contrast, is essentially a bank that sells furniture. With 69.4% of its sales on credit, Lewis creates its own liquidity. When cash-strapped consumers cannot afford a new fridge or sofa upfront, Lewis provides the financing to make the sale happen.This "credit lever" allows Lewis to bypass the immediate liquidity crunch that is strangling cash retailers. While Mr Price fights for a share of a shrinking wallet, Lewis expands the wallet..The "Hidden" Profit Engine: Ancillary Revenue.The most striking divergence is in "Other Revenue"—the income from interest, insurance, and club fees.Lewis: Ancillary revenue surged 16.2%.Mr Price: Financial Services revenue decreased by 0.8% in its last reporting period, and debtors' interest dropped.This is the magic of the Lewis model. As it extends more credit (+9.1% credit sales), it locks in a long-tail of high-margin annuity income. Lewis isn’t just selling a couch once; it is selling a two-year stream of insurance and interest payments. For competitors like Mr Price, who are trying to keep bad debts low by tightening credit (approving only around 22% of new accounts), this revenue stream is drying up..The Risk Profile: Quality vs. Quantity.Critics often argue that Lewis’s growth comes at the cost of bad debt. Indeed, Lewis reported a 14.8% increase in debtor costs, a figure that would terrify a bank.However, Lewis prices this risk into its merchandise and insurance premiums. A collection rate of 78.3% is considered "satisfactory" for its model because the margins are high enough to absorb the defaults.By comparison, Mr Price prides itself on a pristine, low-risk book, but this conservatism acts as a handbrake on growth during lean times. Lewis is running ‘hot’ to capture market share, while competitors remain risk-averse..The Verdict for Investors.For the Ricardo portfolio, the Lewis update confirms that in a high-interest, low-growth environment, the credit retailer is king.While the fashion retailers (Mr Price, TFG, Truworths) are waiting for the South African Reserve Bank to cut rates so their customers have cash to spend, Lewis has already pivoted. It is monetising the distress by offering terms.When the rate cuts do come later in 2026, the cash retailers should see a cyclical bounce. But Lewis, with its massive debtors book already locked in at higher yields, sits in the sweet spot of having high-margin income and a growing customer base.For the BizNews Ricardo portfolio, Lewis remains a compelling play on the "SA Inc." recovery. The company is generating cash, growing its book of business, and capturing market share. While rising debtor costs warrant close watching, the double-digit revenue growth is a testament to the brand's durability.Shareholders can expect the full annual results on 28 May 2026, with the focus likely to turn to how this strong revenue performance translates into bottom-line dividends.

Lewis delivers double-digit revenue surge: A vindication for the Ricardo Portfolio?

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