Shares in Lovisa Holdings Ltd (ASX: LOV) are the second-worst performer on the S&P/ASX 200 Index (ASX: XJO) on Thursday after a profit result that missed analysts' expectations by a wide margin.
The question is, are the shares still worth buying, or is the bad news only going to get worse?
In terms of the longer-term share price outlook, it's fair to say analysts are split.
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Mixed profit result
But first, let's look at the results.
Lovisa, in a statement to the ASX on Thursday morning, said revenue was up 23.3% to $500.7 million, with comparable store sales up 2.2%.
The company's underlying net profit came in at $69.6 million, up 21.5%, while the net profit including one-offs was $58.4 million.
The company also boosted its interim dividend to 53 cents, 50% franked, up from 50 cents.
Global Chief Executive Officer John Cheston said regarding the result:
Lovisa has once again been able to deliver strong growth in the underlying global Lovisa business, with the highlight another exceptional gross margin performance and the continued momentum in the store rollout through the period. I would like to share my appreciation to the global team for their hard work in delivering these outstanding results.
Tarnished result
While the company's numbers look good on the face of it, it gave little prominence to the loss made by its Jewells division, which posted an EBIT loss of $10.8 million for the half, with this detail published only as a footnote to the profit report.
The company said Jewells was in the start-up phase, and hence the underlying results did not include its contributions.
Lovisa said its balance sheet was strong and its cash flow was good.
The company went on to say:
Lovisa generated cash from operations before interest and tax of $183.8m and is in a strong position to deliver future store growth. The strong cash flow and balance sheet position has enabled the Board to announce an interim dividend of 53.0 cents, 50% franked, representing 100% distribution of first half reported earnings. The Board will continue to assess dividend levels each half year and determine the appropriate level of dividend based on profitability, cash flow and future growth capex requirements of the company and the structure of the balance sheet.
Lovisa opened 85 new stores in the half, bringing the total number to 1095 in more than 50 markets.
Commenting on trading so far this calendar year, the company said comparable store sales were up 1.6%.
Analysts' views mixed
We canvassed the views of three brokers, and they have widely differing price targets on Lovisa shares.
What they did agree on was that the first half result was a wide miss to consensus estimates, with Jarden saying net profit was 14% below consensus, including the Jewells losses.
Jarden has maintained an overweight rating on the shares and a $40.90 price target compared with $27.64 on Thursday, down 10.9%.
UBS has a price target of $33 on the shares, while RBC Capital Markets has an underperform rating on the stock and a price target of $26.
The RBC team said removing the Jewells results from underlying results might be viewed cynically by investors, given its financials were included in previous results.
