Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lovisa Holdings Ltd (ASX:LOV, Financial) opened 128 new stores, expanding its network to 900 stores globally.
- The company achieved a 17.1% growth in total sales despite a 2% decline in comparable store sales.
- EBIT increased by 21.2% to $128.2 million, and NPAT rose by 20.9% to $82.4 million.
- Gross margin improved by 110 basis points to 81%, reflecting effective pricing and inventory management.
- The company announced a final dividend of $0.37 per share, bringing the full-year dividend to $0.87, a 26% increase from FY23.
Negative Points
- Comparable store sales were down 2% year-over-year, indicating challenges in existing store performance.
- The Australasian region remains the most challenging market, with flat sales despite new store openings.
- Higher interest expenses due to increased borrowings and higher interest rates impacted NPAT.
- The pace of store rollouts slowed compared to the previous year, with 128 new stores versus 210 in FY23.
- Inflationary pressures, particularly on wages, have increased the cost base, impacting overall profitability.
Q & A Highlights
Q: Just the gross margin performance, very strong into the second half, you mentioned pricing and promotion. Can you give a little more color on whether you were able to put through pricing increases or was it just better promotional activity management? Also, any input costs with air and sea freight up?
A: Majority of it was from price increases. We put price increases through the second half, similar to the first half in prior years. It was more targeted now—specific ranges and markets. We haven't seen any obvious impacts on our ability to sell through, so the gross margins flowed straight through. On the input cost side, freight costs were stable, and we saw good work from the team on tendering.
Q: On Australia, the stores opened 10 there, but sales were flat. Can you give us some color around the issues faced and actions taken to correct?
A: Australia is a mature market for us, so new stores don't have as much impact on total sales growth. Compared to other markets, it's not trading as strongly, but we are focused on our own execution to offset that. We don't give too much commentary market by market.
Q: Victor, why the decision not to stay longer as CEO given your impact and the number of stores opened?
A: I will serve Lovisa for four fiscal years, including this one and the next. I think it's time for me to move on. The company is performing well, and I am still one of the major shareholders. The company is in good hands after my departure, and I believe it will continue improving results.
Q: On China, it looks like you're building a brand presence through online marketplaces. How has progress been, and why not open physical stores concurrently?
A: We are taking a step-by-step approach to learn about the Chinese market. E-commerce presence is important, and we are analyzing opening stores. It's a strategic decision to understand the Chinese customer and the right offering for them.
Q: On the US, good growth in the Americas but only one store opened in the second half. Why the slowdown, and will it pick up?
A: Our store rollout depends on opportunities at the time. We grew significantly in the Americas and will continue analyzing opportunities. We opened one store in the last six months but will continue to look for more. It's not a race to open stores; we focus on opening profitable stores.
Q: With the opening of the warehouse in Columbus, should we expect greater efficiencies in the US in '25?
A: Without any doubt. The new warehouse represents a strong base for future success in America. It adds capacity to support significant future growth across the region.
Q: On the competitive landscape, do you get the sense that you've added market share over the course of '24 on a like-for-like basis?
A: There is always competition. We focus on delivering better products, customer service, and experience. We work hard to lead in fashion custom jewelry and beat competitors in product and customer service.
Q: On gross margins, second half '24 was 81.3%. Moving into fiscal '25, should gross margins be at least 81.3%? Any headwinds expected?
A: We are not giving guidance on gross margin for FY25. What we delivered in the second half is exciting from a pricing perspective. We will continue to execute on product and promotional activity. The margin expansion over the last three fiscal years has been consistent, and we aim to continue that.
Q: On the slower rollout, can you confirm it's more about improving your own processes rather than landlords being tougher or sites harder to find?
A: We open profitable stores whenever we find suitable locations. The brand awareness of Lovisa has increased, making it easier to find good locations. The slower rollout is more about our own processes and ensuring we open the right stores.
Q: On the US market, are there any characteristics that make it more difficult to commit to leases?
A: The cost to build a store in the US is higher, but we work with landlords to find great locations. The main difference is the higher cost of building stores, but we manage that. There is no significant difference in landlord negotiations compared to other markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
