New stores lift Lovisa’s sales
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 jewellery retailer has experienced in recent times.
Revenue was up 15.3 per cent 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 per cent 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 jewellery 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 per cent – 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 per cent, thanks to higher USD hedge rates and its focus on inventory management and promotional effectiveness. Gross profit increased by 16 per cent 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 the cost of doing business as a percentage of sales.
The retailer reported a 2.8 per cent increase in earnings before interest and tax to $52.5 million, and a 3 per cent 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.
New stores to continue to drive growth
Looking ahead, the key driver of growth for Lovisa is the continued expansion of stores around the world.
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 minimising markdowns and looking at price.
“We constantly review each market, each style and how all of that interacts with each other. We’re constantly looking at 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 per cent, Fallscheer said. He attributed this to price gains and increased volumes.
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