WHERE TO INVEST : Pepkor and Lewis show retail riches hiding in plain sight

Pepkor and Lewis are showing investors that South African retailers can still grow by turning store networks into service engines. Their share prices remain bruised, but solid earnings, dividends and financial services growth suggest patient stock pickers may find value.

A decade ago, JSE management teams were being rewarded for getting capital out of the country as quickly as humanly possible. Today, the market is swooning over executives who are unlocking growth in South Africa by using their core business as a distribution engine for other opportunities. How times change!

But this doesn’t mean that the share prices of these companies are heading in the right direction this year. Markets are fickle things, with the broader geopolitical worries hurting the valuations of even the best businesses. Other than for a handful of sectors, 2026 is proving to be an ugly year.

These environments create wonderful opportunities for stock pickers, as great companies can be picked up at relatively cheap levels. Market dislocations are where the money gets made, although they require a long-term view and patience. As the old saying goes: the market can remain irrational for longer than you can remain solvent.

The past week gave us results from two retailers that are doing a lot of great work in their underlying businesses. Despite this, both share prices are down year-to-date. I’ve already added one of them to my portfolio and I’m exercising patience in adding the other.

Pepkor’s shareholders have watched the price decline by 19% year-to-date. But the results for the six months to March 2026 reflect revenue growth of 13.2%, with sales up by 5.2% if you exclude acquisitions. That doesn’t sound like a business that deserves to be punished.

An even more impressive metric is the two-year compound annual growth rate (CAGR) in like-for-like sales of 5.7%. Despite all the difficulties of the South African consumer story, Pepkor is achieving comparable growth that is well ahead of inflation. There aren’t many retailers that can say that at the moment.

With normalised headline earnings per share (Heps) up by 12.1% and cash from operations up by 15.1%, Pepkor is turning this revenue growth into solid returns for shareholders.

If we dig deeper, we find a segmental story that shows exactly why it’s so important for Pepkor to layer services over its traditional retail business. Operating profit was up by only 3.6% in clothing and general merchandise. In furniture, appliances and electronics, that metric was up by just 1.0%. These are unimpressive numbers that show us why t