Lovisa Holdings Ltd (ASX: LOV) shares are on watch this morning after the fashion jewellery company released a trading update. Shares in Lovisa have plummeted more than 60% in the current market turmoil, with investors backing away from consumer discretionary shares as fears of a recession loom.
This morning, Lovisa announced a large number of temporary store closures as result of the coronavirus outbreak. All stores in France and Spain have been closed since Sunday 14 March with stores in Spain expected to remain closed to the end of the month. French stores are expected to remain closed until the middle of April as a result of the government imposed shut down.
In Malaysia, all stores have been closed since Wednesday 18 March and are expected to remain closed until at least the end of the month as a result of government imposed shutdowns. Lovisa currently also has 25 stores closed or closing across the US as a result of local government directives for shopping malls to close. These stores are expected to remain closed until at least early April.
While all other markets are still open and trading, Lovisa has seen a declining sales trend with large decreases in store traffic in recent days. This decline, combined with store closures, has resulted in a significant deterioration in sales. Lovisa has advised it is not in a position to reliably estimate the financial impact of these events in coming months.
Lovisa is focused on managing the cost of doing business and is taking actions to manage both costs and cash flow. The company is supported by a strong balance sheet, having brought net cash of $12.6 million at December 2019 into the second half.
Production capacity at both Lovisa’s suppliers and distribution hub in China have begun to return to normal levels. Nonetheless, Lovisa continues to experience delays in freight movements out of China and uncertainty regarding the timing of supplier deliveries.
Lovisa is currently operating 449 stores globally (including those that are temporarily closed), an increase of 60 stores on FY19. While the company plans to open further stores during the remainder of the financial year where it is already on site or holds committed leases, it is actively deferring store openings as a result of the conditions brought on by the coronavirus pandemic.
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Motley Fool contributor Kate O'Brien 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.
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