Lovisa (ASX:LOV): How it has defied the demise of retail and why there’s more growth to come

Ujjwal Maheshwari Ujjwal Maheshwari, January 17, 2024

The story of Lovisa (ASX:LOV), an Australian fashion jewellery retailer, is a compelling tale of strategic expansion and market mastery. With over 800 stores spanning more than 30 countries, Lovisa is symbolised as the outcome of a remarkable journey from local dominance to international acclaim. Initially, its base was solidified in Australia, and then its reach was extended, with the expansive and uncharted territories of major markets like the United States and China. But this was not just about expansion. It was also about adapting to meet consumer needs and preferences, while still defying the purported ‘cost of living crisis’. Its shares have more than tripled in 5 years when peer Michael Hill (ASX:MHJ) is only up 50% in that time frame. Why?

 

Lovisa – a stock for both growth and income investors

The expansion blueprint of Lovisa is considered a masterclass in strategic growth, with a significant increase in its global store footprint being the primary focus. New, high-potential markets like China, Canada, Mexico, and Vietnam are being ventured into by Lovisa, and a path of limitless growth possibilities is being charted. In the United States, where the population dwarfs that of Australia, a golden opportunity to deepen market penetration is identified. Analysts are expecting 19% sales growth in FY24 and FY25, along with 8% profit growth in FY24 and 29% profit growth in FY25, inevitably assuming continued success in its expansion.

Embracing Lovisa as an investment goes beyond mere growth ambitions; it involves a journey of rewarding dividends. Projected to disburse fully franked dividends of 70 cents per share in FY24 and 81 cents per share in FY25, Lovisa paints a picture of a flourishing yield, estimated at 3% and 3.5%, respectively. This projection offers investors a harmonious blend of robust growth potential and a steady stream of income.

 

 

Lovisa’s Explosive Growth and the Men Behind It All

Lovisa’s ascent to a global retail leader is also anchored by its CEO, Victor Herrero’s strategic expertise, vital in driving the company’s expansive reach. Herrero took crucial steps in transitioning his company from a regional player to a globally recognized brand which solidified investor trust and outlined a promising future.

Retail magnate Brett Blundy has played a big part too as Chairman of the Company and indirect 40% shareholder of the company through his fund BB Retail Capital.

 

Attractive Valuation

In terms of valuation, Lovisa currently stands at an attractive point, valued at 25 times FY25’s estimated earnings and 1.1x PEG. This valuation is particularly appealing when considering the company’s growth potential and the expected increase in profitability and dividends in the coming years.

 

Brokers’ Endorsement

The broking community has consistently echoed a bullish outlook for Lovisa. Morgans, for example, currently has an ‘add’ rating and $27.50 price target. Acknowledging Lovisa as a potential standout in the annals of Australian retail success stories, Morgans envisions a path characterised by unceasing growth and expansion, especially in those markets which hold untapped opportunities.

Bell Potter is another that perceives a positive outlook for Lovisa. They emphasise two key factors: the company’s substantial potential for global expansion and its ability to withstand fluctuations in consumer spending. Bell Potter’s “buy” rating, along with a price target of $25.00, serves as a strong vote of confidence in Lovisa’s position as a formidable player in the fashion jewellery retail sector. This endorsement underscores the belief in the company’s  continued growth and resilience in the market.

 

A Vision of Expansion

The future for Lovisa appears exceptionally promising, with projections indicating the potential for doubling its global store count to 1,600 within the next five years. This ambitious expansion plan goes far beyond being a mere support beam for the Lovisa share price; it serves as a comprehensive blueprint for significantly enhancing net profit margins and increased profitability resulting from scale efficiencies can potentially lead to higher dividend payouts. As the store network continues to grow, the company stands to harness the formidable power of scale efficiencies, further fortifying its financial stronghold.

 

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