HOLD Lovisa (LOV)

Intelligent Investor Gaurav Sodhi

With most retailers complaining of higher costs, staff shortages and the now famous “supply chain issues”, we were unsure what to expect from Lovisa. We needn’t have worried. This was one of the best financial results of the season.

Revenue was up over 55% and earnings before interest and tax (EBIT) leapt 81% higher to $77 million. A store count that grew by 85 helped with those numbers, as did normalisation of spending habits after pandemic measures.

Importantly, the US rollout continues to impress and now boasts 118 stores, the second largest territory in a network of 629 stores. The US could ultimately have thousands of stores. We might only be in the early stages of the American rollout.

Lovisa quietly added new trademarks to its arsenal, suggesting it could be readying for new territories in coming years. The hit list includes Mexico, Canada, Namibia and Italy, among others.

The new chief executive, Victor Herrero, comes from fast-fashion giant Inditex, owner of Zara, where he oversaw a large rollout in China. There is persistent speculation that Lovisa will eventually launch in that market, too.

Lovisa has a proven retail concept with the strongest economics we’ve ever seen in a retailer, a proven ability to roll out stores quickly and the logistics, supply chain and marketing to support a growing network.

The share price rose 20% as the result was released and has continued climbing. It now trades at more than 40 times earnings. With continued growth in store numbers and revenue, that multiple will fall quickly. The high price is, in our view, justified by the opportunity ahead.

But it’s important not to get carried away. Lovisa remains a HOLD.