Operating Margin - Lewis Group Ltd (JSE:LEW)

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Price: 9 105 Zac 0.6%

Market Cap: 5.2B Zac

12.6%

Current

11%

Average

3.1%

Industry

Operating Margin represents how efficiently a company is able to generate profit through its core operations.

Higher ratios are generally better, illustrating the company is efficient in its operations and is good at turning sales into profits.

Operating Margin

12.6%

Operating Profit

1.2B

Revenue

9.8B

Operating Margin Across Competitors

Country		Company	Market Cap	Operating Margin
ZA	L	Lewis Group Ltd JSE:LEW	5.2B Zac	13%
US		Williams-Sonoma Inc NYSE:WSM	23B USD	18%
JP		Nitori Holdings Co Ltd TSE:9843	1.5T JPY	13%
MT	H	HomeChoice International PLC JSE:HIL	4.7B Zac	18%
US		RH NYSE:RH	3.2B USD	10%
UK		Dunelm Group PLC LSE:DNLM	2.2B GBP	12%
US		Arhaus Inc NASDAQ:ARHS	1.6B USD	7%
CA		Leon's Furniture Ltd TSX:LNF	1.9B CAD	9%
CN		Chengdu Fusen Noble-House Industrial Co Ltd SZSE:002818	8.6B CNY	53%
AU		Nick Scali Ltd ASX:NCK	2B AUD	21%
CA		Sleep Country Canada Holdings Inc TSX:ZZZ	1.2B CAD	13%

Lewis Group Ltd
Glance View

Market Cap

5.2B Zac

Industry

Retail

Founded in 1934, Lewis Group Ltd has carved a niche for itself in the South African retail landscape by focusing primarily on the furniture sector. As a well-entrenched player, Lewis Group's operations reflect a model deeply rooted in consumer credit, allowing customers to purchase durable household merchandise through credit facilities. The company's brand portfolio, which includes Lewis Stores, Best Home and Electric, and Beares, forms a network of retail outlets across Southern Africa. This extensive footprint enables Lewis Group to tap into diverse market segments, ranging from the urban centers to the more rural towns where its customers often rely on the convenience of credit-based purchasing to furnish their homes. This credit-centric approach not only widens their reach but also fosters customer loyalty, making purchases more accessible for many South African families. The financial ecosystem devised by the Lewis Group revolves significantly around its in-store credit services. By underwriting and managing consumer credit, the company effectively creates a dual revenue stream: one from the sale of merchandise and another from financing income. This model hinges on disciplined credit risk management and a deep understanding of the consumer finance sector, which together help balance the challenges and opportunities inherent in this approach. Moreover, through tailored collections strategies and an adept salesforce, Lewis Group sustains a robust cycle of credit extension and repayment, enhancing both sales and credit income. This synergy of retail and financial services stands as a testament to the group's strategic understanding of their customer base, allowing it to maintain a steady footing even amidst economic fluctuations.

View LEW Analysis

LEW Intrinsic Value

What is Intrinsic Value?

Economic Moat is a concept popularized by Warren Buffett to describe a company's durable competitive advantage. It represents the 'moat' that protects a company from competitors and helps it sustain profitability over the long term. Our analysis of the past 10 years showed that companies with a wide economic moat significantly outperformed the market, delivering +645% returns compared to +189% for the S&P 500.

Our research into Economic Moat performance spans the past 10 years and focuses on companies with a wide economic moat. For this analysis, we calculated the average stock price returns of these companies, comparing them to the performance of the S&P 500 index over the same period.

The results were compelling: wide moat stocks achieved a remarkable +645% average return, compared to +188% for the broader market. This difference highlights the long-term benefits of investing in businesses that can maintain their market position and pricing power over time.

Note: This research does not account for survivorship bias. Past performance is not indicative of future results.

Determining whether a company has an economic moat requires both a deep dive into financial metrics and a qualitative assessment of its competitive position. Our analysts conduct a rigorous evaluation that focuses on identifying structural advantages that enable a company to sustain profitability and defend its market share over the long term.

The process begins with an analysis of a company’s historical financial performance. We assess how consistently the company has generated returns above its cost of capital and whether those returns have been stable or improving. However, financial performance alone doesn’t reveal the full picture. To understand the sources of these advantages, we evaluate five key drivers of economic moats:

Network Effect: We analyze whether the value of a company’s product or service grows as its user base expands. Platforms like payment systems or marketplaces benefit from this self-reinforcing.

Switching Costs: We assess whether customers face significant costs or disruptions when switching to a competitor’s product or service. High switching costs create customer stickiness and provide pricing power.

Intangible Assets: Strong brands, patents, and regulatory licenses can protect a company’s market position by creating barriers for competitors or enabling premium pricing. For example, a well-recognized consumer brand may command higher customer loyalty and margins.

Efficient scale: Occurs when a market is optimally served by one or a few players, making it unprofitable for new entrants to compete. This typically happens in industries with high fixed costs or geographic constraints, such as utilities or pipelines.

Cost Advantage: Companies with structural cost advantages can produce goods or services at a lower cost than their competitors, enabling them to offer competitive pricing or maintain higher margins. These advantages often arise from economies of scale, superior supply chain management, or proprietary technology. Firms like Walmart leverage their massive scale to negotiate better terms with suppliers, allowing them to undercut competitors on price.

By examining these factors in combination with a company’s financial performance and market positioning, we classify each company into one of three categories:

This rigorous evaluation ensures that our moat ratings are both comprehensive and reliable, giving investors the tools they need to make well-informed, long-term decisions.

The AI Assistant may sometimes provide inaccurate information.

Make your own investment decisions or consult a licensed financial advisor.

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Lewis Group Ltd
JSE:LEW