MENU

Why Lovisa Holdings Ltd (ASX:LOV) shares have been smashed today

It has been a disappointing day of trade for the Lovisa Holdings Ltd (ASX: LOV) share price.

At the time of writing the fast-fashion jewellery company’s shares are down 8% to $10.31 following the release of its full year results.

For the 12 months ended June 30, here is a summary of how Lovisa performed in comparison to a year earlier:

  • Revenue came in 21.4% higher at $217 million.
  • Same store sales growth of 6.8%.
  • Gross Margin increased 120bps to 80%.
  • Earnings before interest and tax rose 25.5% to $51.1 million.
  • Net profit after tax jumped 23.8% to $36 million.
  • Earnings per share of 34.2 cents.
  • Final dividend of 14 cents per share, bringing its full year dividend to 27 cents per share.
  • Outlook: Store rollouts to accelerate. Same store sales growth currently trading below its long-term target range of 3% to 5%.

I thought that this was a strong result from Lovisa and went some way to justifying the incredible 12-month 188% rise in its share price prior to today’s decline.

The strong sales and profit growth were driven by a combination of its impressive same store sales growth and the rollout of new stores globally. The store network increased to 326 stores in FY 2018, a net increase of 38 stores from June 2017, with 52 new stores opened and 14 stores closed as part of its ongoing store network optimisation process.

A third of these new store openings were in the UK where the company goes from strength to strength. It now has 24 stores in the UK market, up from 11 a year earlier.

Pleasingly, its global expansion is expected to accelerate in FY 2019 with the number of store openings expected to be higher than in FY 2018. Management expects to go into Christmas trading with at least 7 stores in each of France, Spain, and the United States.

It is the latter market which I am particularly excited about. Given the size of the U.S. market, I believe there is a significant runway for growth there. At present there is only one U.S. store open, compared to 151 in Australia.

Outlook.

While FY 2018 was a big success and the company’s future plans should result in strong long-term growth, it is hard to look past the company’s soft start to FY 2019. While it is worth noting that it is cycling some incredible growth during the prior corresponding period, it is still disappointing to see same store sales growth below the 3% to 5% target range.

Should you invest?

Because of this slow start, I can’t say I’m surprised to see its shares take a bit of a tumble today. After all, they are priced at 30x earnings, so a lot of growth has been built in already.

I wouldn’t be surprised if profit taking continued to weigh on its shares for a few days, which might make it worth keeping your powder dry for now. But once the dust settles I think this may be a buying opportunity for patient investors.

In the meantime, fellow retail shares Bapcor Ltd (ASX: BAP) and Super Retail Group Ltd (ASX: SUL) could be worth a look.

ASX Tech Share – Real Winner from the World Cup

Earlier this year, millions of Australians set alarms and watched the world's biggest sporting event, the World Cup, play out. But did you know there was another Australian representative quietly succeeding as the world watched?

It's the start-up who have positioned themselves as the global leader in sports analytics. Motley Fool's resident tech expert has already upgraded the recommendation of this company's stock to a rating of simply "Buy More".

Click here to access this share. It's completely FREE!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.