Why the Lovisa share price is printing 52-week lows

The share price of fast-fashion jewellery chain Lovisa Holdings Ltd (ASX: LOV) has fallen 9.6% to a 52-week low of $5.62 during Thursday’s trading session. Lovisa has made no announcements to the market since late October and today’s sharp decline is therefore likely attributable to this morning’s announcement from apparel chain Kathmandu Holdings Ltd (ASX: KMD).

Kathmandu reported weaker than expected Christmas trading results that have seen its share price fall by 12.6% to $2.29. The Christmas trading period is the most important and busiest time of the year for retailers. Expectations heading into the Christmas trading period for retailers were subdued and Kathmandu’s announcement could be the first in a number of announcements that fail to meet expectations.

Kathmandu’s announcement has created a ripple effect on the local market today with other retailers such as Myer Holdings Ltd (ASX: MYR) and Super Retail Group Ltd (ASX: SUL) down by 4.8% and 4.1% respectively on a day where the broader market is up 1.4%.

Foolish takeaway

Lovisa’s share price has broken the previous 52-week low of $5.99 and is down 55.1% since posting a record high of $12.53 in June. The last time Lovisa traded around these sorts of levels was in October 2017.

A disappointing trading update and the general bearishness in global equity markets over the last couple of months has fueled the decline in Lovisa’s share price. In October, the company reported a year to date comparable same-store sales decline of 0.9%, which was well short of its target of 3% to 5% growth.

In FY18, Lovisa managed to grow revenue by 21.4% to $217 million with margin expansion lifting net profit after tax by 23.8% to $36 million. The company reported basic earnings per share of 34.24 cents in FY18, which means the company is currently trading for around 16 times trailing earnings.

How Lovisa fared during the Christmas period is yet to be known, but the company does have some of the best growth prospects among Australian retailers with its ongoing international expansion having the potential to be very lucrative. With the company’s interim result not due till February it may be prudent for investors to wait before deciding to invest. The February report will reveal whether the company’s same-store sales performance has improved or worsened and how its international expansion is faring.

Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. 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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