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).

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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.

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