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Lovisa share price up 5% as retailer provides business update

The Lovisa Holdings Ltd (ASX: LOV) share price climbed over 5% in today’s early trade after the retailer released a business update last night. Lovisa was forced to close stores globally as a result of the COVID-19 pandemic but has now re-opened and reported a surge in online sales during Q4 FY20.

What does Lovisa do?

Lovisa is a fast-fashion jewellery and accessories retailer with over 400 stores globally. The company has a target customer base of fashion-conscious females aged 25-45. Operating a vertically integrated business model, Lovisa develops, designs, sources, and merchandises 100% of its Lovisa-branded products. Founded in 2010, Lovisa expanded rapidly, opening store No. 51 on the company’s first year of operation.

What did Lovisa report?

Lovisa announced that stores have now re-opened in all company-owned markets, with the company trading from 434 stores at the end of FY20. Store closures significantly disrupted Q4 FY20 sales. Lovisa’s sale revenue (excluding franchise revenue) was $237 million for the full year ended 28 June 2020 compared to $249 million in FY19.

Comparable sales for the period since stores have re-opened were down 32.5% on the previous year. Performance has been strongest in Australia and New Zealand where stores have traded the longest after an ease in restrictions. Lovisa reported online growth of 256% during Q4, with trading websites now operational in most of its markets.

How is the Lovisa share price performing?

The Lovisa share price dived 80% from a high of $12 in February to a low of $2.45 in March. Since then the Lovisa share price has gained 160% with shares currently trading at $6.40. Lovisa took action to manage the cost structure of its business following the temporary closure of the store network. This included temporary stand-downs and redundancies, as well as discussions with landlords in relation to rent subsidies and abatements. As a result, the balance sheet remains strong with current net cash of $21 million, compared to $11 million at June 2019.

In 1H FY20 Lovisa opened a net 49 stores, growing revenue by 22% and net profit after tax by 9.1%. With the trade disruptions taking place in 2H FY20, it’s unlikely Lovisa can replicate these results over the full year. Nonetheless, the company is well-placed to invest in future opportunities as the economy emerges from the coronavirus.

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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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Kate O'Brien