Lovisa Holdings Limited (ASX: LOV) shares hit an all-time high earlier today after the company reported a strong FY19 result.

Lovisa was established in 2010 and has rapidly become one of Australia’s leading fashion jewelry and accessory retailers. The company listed on the ASX with a market cap of just $210 million but has expanded its store footprint and become such a favourite with shoppers to the point where it is now valued north of $1.2 billion less than a decade later.

What Did Lovisa Report?

For the 2019 financial year (FY19) Lovisa recorded a 15% increase in revenue to $250.3 million which was driven by the opening of 70 new stores as the company continues to drive ahead with their international expansion plans.

The uptick in revenue translated to a 16% rise in gross profit to $201.4 million, whilst earnings before interest, tax, depreciation and amortisation (EBITDA) was up a more moderate 7.1% at $62.3 million.

The ongoing costs associated with the roll-out of the international stores meant that net profit after tax was up a more subdued 3% to $37 million.

Possibly the most important indicator to track is comparable store sales (often referred to as like for like sales) which actually declined by 0.5% over the year. This figure is particularly important as there is a limit to how many stores the company can open and once that is reached the acquisition lead growth story will abruptly end.

Lovisa declared a final dividend of $0.15 per share which brings the full year dividend to $0.33 and places Lovisa shares on a trailing dividend yield of 2.7%.

This may not appear to be a huge dividend on face value however for those long term holders who were smart enough (or lucky enough) to buy when the company first listed, they now effectively hold Lovisa shares with a 16.5% dividend yield based on their purchase price. This just goes to show that it’s not so much the dividend yield in isolation that you should focus on but rather the company’s ability to grow that dividend over time.

Management Comments & Outlook

Commenting on the result CEO Shane Fallscheer said: “We are pleased that we have been able to continue the momentum of our store rollout through to the second half which has again delivered us strong top line sales growth despite more challenging trading conditions, particularly in the first half, which contributed to negative comparable store sales for the year.”

The company didn’t provide any specific profit guidance for FY20 however stated that they will continue with their international expansion having opened 14 net new stroes since June 30. Pleasingly they also stated that comparable store sales had continued to pick up and was back within their target range of 3-5%.

Would I Buy Lovisa Shares Now?

I think the retail industry, particularly retailers relying on discretionary spending, is in for a tough time over the coming 12-24 months. Lovisa has been somewhat shielded thus far due to its aggressive store roll-out but I have my doubts on how long the party can continue.


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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Luke has no financial interest in any companies mentioned.