The ASX retail stock Lovisa Holdings Ltd (ASX: LOV) may be a leading opportunity to buy in December before 2025 starts.
The affordable jewellery retailer could be one of the best ASX growth shares because it can deliver both capital and dividend growth.
Compared to where it was a decade ago, the Lovisa share price has climbed more than 1,200%, plus dividends. I'm not expecting the next ten years to be as good, but I'm very optimistic about what it could achieve.
For starters, the Reserve Bank of Australia (RBA) has indicated that Australia's inflation is headed in the right direction. This may signal that interest rate cuts are getting closer, which could help increase consumer spending, perhaps as early as February or March 2025.
But, with a global store network, an RBA rate cut in Australia may not help as much as it would a company like JB Hi-Fi Ltd (ASX: JBH). However, that global store network is one of the main reasons why Lovisa is such an appealing ASX retail stock. Let me explain why I'm so optimistic about the company.
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Global growth
The company is rolling out its store network across every continent (except Antarctica), which gives the ASX retail stock a lot of room to grow.
At the end of FY24, the company had 900 stores, 206 of which were in Australia and New Zealand. It has a presence in countries with large populations that could support much larger store numbers, such as China, Vietnam, Italy, Germany, the UK, Poland, Canada, and the USA.
In FY24 alone, the business added 99 net new stores to its network, which represented an increase of 12% year over year.
I believe the ASX retail stock will be able to double its store network size in less than eight years, perhaps quite a bit sooner.
Profit expected to accelerate for ASX retail stock
As the company's revenue grows, I'm expecting Lovisa's profit to grow even faster.
One of the great things about its business model is that its increased scale can lead to rising profit margins. A bigger store network means better buying power with suppliers, spreading the company-wide fixed costs across more stores, and various other benefits.
Ultimately, investors usually value businesses based on how much profit they're making.
According to UBS, revenue is expected to rise by 60% to $1.23 billion between FY25 and FY29. Net profit is projected to rise 74% between FY25 and FY29. That implies profit margins could noticeably rise in the next few years.
If Lovisa can continue growing its net profit after tax (NPAT) by more than 10% per year, then I think the Lovisa share price could keep climbing.
Pleasing dividend growth
The ASX retail stock is rewarding shareholders with a high dividend payout ratio. It doesn't need to hold onto much cash, considering opening a store with affordable jewellery does not require much capital.
The ASX dividend stock more than doubled its dividend between FY19 and FY24, and the dividend is expected to keep growing in the long term.
According to the UBS forecast, the company is projected to pay an annual dividend per share of 90 cents in FY25, which could grow to $1.48 per share by FY29 (a 64% rise). The 2029 financial year payout is projected to have a dividend yield of 4.9%.
I expect the ASX retail stock may be able to deliver even more dividend growth after that.
