Lovisa Share Price Spikes Up on Positive Results (ASX:LOV)

At time of writing, the share price of Lovisa Holdings Ltd [ASX:LOV] is up more than 17%, trading at $12.96.

After steadily climbing its way back up the charts, the LOV share price has gapped up in today’s trading:

Lovisa Shares - ASX LOV Share Price Chart

Source: Tradingview.com

We look at the highlights from the LOV results, the outlook for the LOV share price, and the retail bounce that’s playing out across the ASX.

Lovisa delivers strong financial results in difficult environment

Lovisa moved quickly to pivot its sales channels when lockdowns struck the traditional business model.

This is reflected in LOV’s results which you can see below:

  • Net Cash of $42.5m with $50m of debt facilities in place
  • Revenue down 9.8% to $146.9m due to continuing global COVID-19 trading disruption
  • Comparable store sales positive in Q2, down 4.5% for the half year
  • 25 net new stores opened during the half year, 460 at half year end
  • Gross Margin 77.8% on constant currency basis with Gross Profit down 11.7% to $113.4m
  • EBIT decreased by 23.6% to $30.9m
  • Cash conversion of 131% with operating cash flow of $52m
  • Interim Dividend of 20.0 cents per share, 50% franked

The fact revenue fell only 9.8% shows the effectiveness of the pivot and is actually a big win given how many stores the company had to shutter.

The dividend is a solid bonus as well.

This is the take that one Citi analyst had published in the Australian Financial Review today:

Citi analyst Sam Teeger said in a note to clients one big negative was sales were slow to recover in Asia due to low tourism and local movement restrictions impacting mall traffic. He noted positive and improving same store sales are likely to be taken positively given it suggests there are no structural issues with the business.

However, the key driver of Lovisa’s long term growth has always been rollout which is slowing, that said this slower rollout is likely to be masked by the Beeline acquisition, where integration risks are elevated, in our view.

Here’s what I think is at play, though.

Outlook for LOV share price

LOV rose as bargain hunters swooped in on the stock.

Now with a vaccine on the horizon, its bastion of operations (Australia) should be set to fire again.

LOV’s rollout may slow and new store growth may be hard to replicate.

But I think LOV’s outlook hinges on the household savings ratio which spiked during lockdown.

In other words, consumers have a lot of ‘dry powder’ even if the RBA doesn’t.

This is why around a month ago I suggested a retail bounce was on the cards.

I laid it all out in this video:

In it, I show you how to look at RBA data for clues, the charts of retail and e-commerce stocks, and the future of the sector.

It’s a great watch if you are into these kinds of stocks.

Regards,

Lachlann Tierney,
For Money Morning


Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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