In the past four months, the Lovisa Holdings Ltd (ASX: LOV) share price has soared by more than 60%. A majority of that gain was sparked by reporting season, with an impressive FY24 first-half result.
There were a number of pleasing metrics in the result, including net profit after tax (NPAT) growth of 12% to $54.5 million and 31% growth of the dividend per share to 50 cents.
For me, there was a particularly good theme that came through.
Scalability of the business
Lovisa has grown its store network considerably over the last several years, and the good store growth continued in the first half of FY24 – it added another 53 net new stores, with seven new stores in Australia, 12 new stores in France and 17 new stores in the USA.
The company isn't just growing its store count for the sake of it. Lovisa's products seem to have global appeal because it's growing in numerous markets. It has recently entered a number of markets including Hong Kong, Taiwan, China, Vietnam, Namibia, Botswana, Spain, Italy, Hungary, Romania, Canada and Mexico.
It seems it's nowhere near done growing.
This store growth is translating into sales. Lovisa's revenue grew by 18.2% to $373 million in HY24.
The company reported some profitability metrics rose faster than revenue – it's a great sign of scalability. Gross profit increased 18.9% to $301.1 million and earnings before interest, tax, depreciation and amortisation (EBITDA) grew 23.5% to $128.4 million.
Net profit after tax didn't grow as strongly because of the adjustment of higher debt costs.
Pleasingly, the company advised that in the first seven weeks of the second half of FY24, comparable store sales were up 0.3%, while total sales were up 19.6%, with both of those growth measures stronger than the FY24 first half.
The comparable store sales growth shows the growing store network isn't cannibalising sales.
Lovisa must invest some money upfront to enter a new country and open new stores, and then the revenue (and profit) flows in the subsequent months and year (or two). Lovisa could report good growth in the next 12 months, even if it stopped opening new stores today.
The business is delivering good operating leverage, as we can see with the growth of EBITDA faster than revenue.
With the store network's huge potential growth in the coming years, very positive foundations are being built for solid profit increases over the rest of the 2030s, which can support Lovisa shares and dividends.
Lovisa share price valuation
The estimate on Commsec suggests Lovisa could generate earnings per share (EPS) of $1.167 in FY26 and potentially pay a (partially franked) dividend yield of 3.2%. That would put Lovisa shares at 27x FY26's estimated earnings.
