New stores openings deliver Lovisa good sales
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Lovisa managing director Shane Fallscheer told investors on Thursday he was pleased to deliver a “solid result” for FY19 in one of the more difficult trading environments the fashion jewelry retailer has experienced in recent times.
Revenue was up 15.3 percent year on year to $250.3 million, thanks to the addition of 64 new stores in FY19. The retailer’s total store count as at June 30, 2019 was 390.
Same-store sales, however, were down 0.5 percent on the previous corresponding. Fallscheer attributed the weak result to softer trading conditions in the first half of FY19, especially in Australia, and the lack of major trends in the fashion jewelry space, which have helped drive strong same-store sales growth in the past.
He also noted that Lovisa “overperformed” in FY18 – especially in the first half, when same-store sales increased 7.4 percent – which made it harder to deliver comparable sales growth in FY19.
The retailer reported an increase of 50 basis points in gross margin to 80.5 percent, thanks to higher USD hedge rates and its focus on inventory management and promotional effectiveness. Gross profit increased by 16 percent to $201.4 million.
The hiring of several senior executives, the relocation of Lovisa’s third-party logistics hub from Hong Kong to China, the launch of e-commerce capabilities in Australia and New Zealand and continued store rollouts in new territories, however, drove up to the cost of doing business as a percentage of sales.
The retailer reported a 2.8 percent increase in earnings before interest and tax to $52.5 million and a 3 percent increase in net profit after tax to $37 million.
Lovisa finished the year with a cash balance of $11.2 million and a strong balance sheet, Chris Lauder, Lovisa’s CFO told investors.
Looking ahead, the key driver of growth for Lovisa is the continued expansion of stores around the world.
“Lovisa finished the year with a cash balance of $11.2 million and a strong balance sheet, Chris Lauder, Lovisa’s CFO told investors.”
The retailer currently has 404 stores (it has opened 14 so far in FY20) in around a dozen countries, including Australia, New Zealand, Singapore, Malaysia South Africa, the UK, Spain, France, the US, the Middle East and Vietnam.
Lovisa’s biggest market is Australia, where it has 154 stores, followed by South Africa with 61 and the UK with 38, but growth is accelerating in the US, Fallscheer said, where it currently operates 28 stores in California, Texas, Florida and Illinois.
“The eventual size and timing of the store rollout [in the US] will depend on being able to deliver quality stores that meet criteria rather than a [specific] number target,” Fallscheer told investors.
He noted that Lovisa is beginning to gain traction with US landlords, and that it is targeting “small wins” to offset the higher cost of doing business and currency headwinds in the market, including minimizing markdowns and looking at the price.
“We constantly review each market, each style and how all of that interacts with each other. We’re constantly looking at the price…as we mature in the US market, there are probably some slight wins there,” Fallscheer said.
But he admitted, “there’s going to be a gap between price increase and currency decline”.
Same-store sales growth in FY20 so far is within the retailer’s target range of 3 to 5 percent, Fallscheer said. He attributed this to price gains and increased volumes.
Questions & Answers
Q.What specifically caused the decline in same-store sales for Lovisa in FY19?
What specifically caused the decline in same-store sales for Lovisa in FY19?
Shane Fallscheer attributed the weak same-store sales to softer trading conditions in the first half of FY19, particularly in Australia, and the absence of major fashion jewelry trends that previously boosted sales.
Q.Which factors contributed to the increase in Lovisa's gross margin?
Which factors contributed to the increase in Lovisa's gross margin?
The retailer saw an increase in gross margin due to higher USD hedge rates, along with its strategic focus on inventory management and the effectiveness of its promotional activities.
Q.What measures is Lovisa taking to manage the increased cost of doing business, especially in the US market?
What measures is Lovisa taking to manage the increased cost of doing business, especially in the US market?
Lovisa is aiming for 'small wins' to offset higher costs and currency headwinds by minimizing markdowns and carefully reviewing pricing strategies in each market and for each product style.
Q.Where does Lovisa currently have its largest store presence globally?
Where does Lovisa currently have its largest store presence globally?
Lovisa's biggest market is Australia, where it operates 154 stores, followed by South Africa with 61 stores and the UK with 38 stores.
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