Lovisa buoyed by expanding store network
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Jewellery retailer, Lovisa, has exceeded consensus forecasts by booking double-digit revenue, earnings and profit increases, signalling a strong start to FY18 trading.
Revenue increased by 16.5 per cent to $178.7 million for the year ended 30 June on the addition of 38 stores to the company’s network, while same-store sales increased 10.3 per cent.
Strong top line sales drove a 68 per cent increase in earnings before interest and tax (EBIT) to $40.7 million and a 75.5 per cent increase in net profit after tax (NPAT) to $29 million.
Momentum has continued into FY18 and is above management’s long term same-store growth target of 3 – 5 per cent for the first eight weeks of trading.
CEO Steve Doyle declined to provide specific guidance, but said Lovisa plans to open between 20 and 30 stores in FY18 and will consider non-organic growth opportunities as it attempts to cycle strong results from the prior year.
South Africa remained Lovisa’s fastest growing market in terms of store openings, with 14 new locations in the country, alongside a company-owned pilot in Spain and franchise launches in Vietnam and Bahrain bringing the total network of stores to 288.
Doyle wouldn’t comment when asked whether additional investment would be made in Spain, but told investors on Thursday morning that the market fundamentals were positive for the company.
“One of the key things we look for is that fashionability, that our customer is there and she wears the kind of product that we sell – we certainly see that in Spain.”
“What we like about Spain is its fashionable,” he said. “One of the key things we look for is that fashionability, that our customer is there and she wears the kind of product that we sell – we certainly see that in Spain.”
Doyle said planning is underway for the upcoming spring racing period, but that Australian-based events were becoming less important to the company as the proportion of offshore stores to local ones reaches 50 per cent.
“The continued strong comparable sales growth in the second half was particularly pleasing, as we had initially anticipated some softening following the cycling of retail price increases in 2016,” Doyle said.
“We continued to expand and optimise our store network to drive growth and performance…due diligence in other markets and opportunities to generate new country growth continues and we are optimistic about Lovisa’s global rollout plans.”
Gross margins increased by 78.8 per cent during the year, as currency headwinds normalised, prices increased and markdowns became less frequent.
Cost of doing business (CODB) as a percentage of sales reduced to 53 per cent, despite growth in stores on efficiencies in labour, distribution and occupancy.
Capital expenditure came in at $8.8 million, impacted by continued international expansion, although a net cash position of $11.0 million was declared at years end.
Questions & Answers
Q.What contributed to the increase in Lovisa's gross margins during the past year?
What contributed to the increase in Lovisa's gross margins during the past year?
Gross margins rose significantly due to currency headwinds normalising, an increase in prices for products, and markdowns becoming less frequent. This combination improved profitability during the year.
Q.How many new stores does Lovisa plan to open in the current financial year?
How many new stores does Lovisa plan to open in the current financial year?
Lovisa plans to open between 20 and 30 new stores in FY18. The company is also considering additional non-organic growth opportunities, alongside this planned network expansion.
Q.Which country saw the most new store openings for Lovisa in the last financial year?
Which country saw the most new store openings for Lovisa in the last financial year?
South Africa was Lovisa's fastest growing market for store openings in the last financial year. The company added 14 new locations within the country, expanding its presence there significantly.