The S&P/ASX 200 Index (ASX: XJO) share Lovisa Holdings Ltd (ASX: LOV) has dropped significantly, making it much better value in my mind. In just the last week the Lovisa share price has fallen 15%, as we can see on the chart below.
I think Lovisa shares can rise like Coles Group Ltd (ASX: COL) shares if the company keeps growing its store network. Coles shares have risen 10% since the start of July thanks to its ongoing good sales performance.
It's an interesting and challenging time for ASX retail shares amid a high cost-of-living economic environment for households. But, some retailers can still do well during this period. Since the start of July 2024, the Coles share price has risen over 10%.
Investors didn't seem to love the Lovisa result, but a number of positives gave me confidence in the company's long-term growth potential.
Ongoing store growth helping revenue
I thought the ASX 200 share's FY24 result was satisfactory, with total revenue growth of 17.1% as the business added approximately 100 stores during the 2024 financial year to reach 900 in total.
Since the end of FY24, it has added eight net new stores, including expanding into the markets of the Ivory Coast and the Republic of Congo.
For a long time, a key part of my optimism about the business has been the opportunity to roll out dozens/hundreds of stores worldwide in countries with significantly larger populations than Australia, such as the USA, China, Vietnam, Germany, France, the UK, Canada, and so on.
I believe Lovisa has plenty of potential to grow its store count by 100 or more a year.
Scale benefits
One of the main factors that I think makes a strong business is when its profit margins increase.
Lovisa demonstrated its ability to deliver scale benefits in the FY24 result, and I think its margins can rise further as its global store network grows.
While FY24 revenue increased 17.1%, gross profit increased 18.7% to $565.8 million, and net profit after tax (NPAT) went up 20.9% to $82.4 million.
Considering investors normally value an ASX 200 share based on its profit, it's a good sign that Lovisa's net profit rose faster than sales.
Comparable store growth
For me, it's not essential that Lovisa's comparable store sales grow much because of how large the store rollout potential is. But, some sort of growth is positive to ensure at least stable profit on a per-store basis.
In the first eight weeks of trading in FY25, Lovisa's comparable store sales were up 2% year over year, while total sales were up 12.7%.
If the ASX 200 share can achieve (a small amount of) growth of comparable store sales each year, then the revenue could shoot higher in the coming years.
