MENU

Why Lovisa Holdings Ltd (ASX:LOV) shares crashed 22% lower today

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

In late morning trade the jewellery retailer’s shares are down over 19% to $6.79. At one stage Lovisa’s shares were down as much as 22% to $6.52.

Why are Lovisa’s shares crashing lower?

This morning Lovisa released its annual general meeting presentation ahead of its event in Melbourne.

Included in the presentation was an update on its performance so far in FY 2019. As you may have guessed from the share price movement today, the company has been underperforming expectations so far this year.

Although it was always going to be hard for the company to achieve its comparable sales targets of 3% to 5% as it cycles strong numbers from a year earlier, it is very disappointing to see that year to date its comparable store sales are down 0.9%.

Management appears hopeful that things could change. It reminded shareholders that the Spring Racing and Christmas trading periods are still to come and play a major part in both its first half and full year performance.

What else was revealed?

Unfortunately, the trading update overshadowed some positive news relating to its global expansion.

Management revealed that its global expansion has continued during FY 2019 with the company growing its presence in the United States, France, and Spain. It will have at least seven stores operating in each of these markets by the Christmas trading period.

As I have mentioned before, I am particularly excited about its prospects in the United States and believe this market could accommodate a store network many times bigger than in Australia. As a point of reference, at the end of FY 2018 the company had approximately 150 stores or 46% of its network in Australia.

Should you buy the dip?

This decline means that Lovisa’s shares are now changing hands at 20x earnings.

While I think this is more than fair given its strong long-term expansion opportunities, I’d probably hold off investing until after the release of its first-half results.

As the next two months are vital for its full year results, I think it would be prudent to see if its performance improves or gets worse during this time. If things were to get worse then there’s every chance its shares will be de-rated even lower in the near future.

For now, investors might be better off looking at retailers that are kicking goals this year such as Bapcor Ltd (ASX: BAP) or Super Retail Group Ltd (ASX: SUL).

The best dividend share to buy in FY 2019

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Super Retail Group Limited. 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.