Why the Lovisa Holdings Ltd share price soared today

Photo: Lovisa Prospectus

Lovisa Holdings Ltd (ASX: LOV) saw its share price soar more than 14% today to $2.28, after shareholders fell back in love with the jewellery and accessories retailer, following a positive trading update.

The company had seen its share price crash as much as 40% at one point in early January after the company warned that its margins were being hammered by the falling Australian dollar. During the six months to December 2015, the Australian dollar had averaged 77 US cents, and fell even more from there this year.

Today the company said it was reconfirming its guidance given on 13 April 2016, when Lovisa said it expected to report earnings before interest, tax (EBIT) of between $23.5 and $25.5 million for the full y2016 financial year (FY16).

Lovisa also announced the appointment of Michael Kay as Chairman following the resignation of existing chairman Paul Cave from that role. Mr Cave will return to his independent non-executive director role with the company. Mr Kay was previously CEO of salary packaging firm McMillan Shakespeare Limited (ASX: MMS) and is currently chair of IMF Bentham Ltd (ASX: IMF).

So what?

Investors will likely be happy that there was no further bad news, that sales are still growing and same-store sales growth was 3% for the March 2016 quarter compared to the prior year. It’s also a complete contrast to online retailer Surfstitch Group Ltd (ASX: SRF) which saw its share price plunge on crashing revenues.

The appointment of a highly experienced chairman in Mr Kay is a positive step for Lovisa too.

Where to now for Lovisa?

The company says it will have 252 operating stores by the end of this month, its new Leeds store in the UK is trading broadly as expected and expects to have 3 remaining pilot stores opened in or around the end of this month too.

This could see the retailer bounce back from its shocking start to 2016.

Foolish takeaway

Trading on a prospective EV/EBIT ratio of 10x is hardly expensive, and considering shares were trading at above $3.50 prior to the January share price crash. Maybe one retailer to add to your watchlist.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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