Release Date: February 21, 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) reported strong sales growth of 18.2% despite a challenging trading environment.
- The company opened 74 new stores in the first half, expanding its network to 854 stores across 40 markets.
- Gross margin improved to 80.7%, up 40 basis points from the previous year.
- EBIT increased by 16.3% to $81.6 million, and NPAT rose by 12% to $53.5 million.
- The Board announced an interim dividend of $0.50 per share, reflecting strong cash flow and balance sheet position.
Negative Points
- Comparable store sales were down 4.4% from the previous year.
- The pace of store rollouts slowed compared to the previous year, with 68 new company-owned stores versus 101 in the same period last year.
- Higher interest expenses due to increased borrowings and higher interest rates impacted NPAT.
- The company faced inflationary pressures on the cost basis of the business.
- Negative comps and higher operating expenses, including increased lease payments, affected overall profitability.
Q & A Highlights
Lovisa Holdings Ltd (ASX:LOV) Earnings Call Highlights
Q: Victor, just on the six net stores open to date, nine openings, any reason in the slowdown in store growth? Specifically, is it landlords that are becoming more difficult or is Lovisa seeking better rentals or other impediments to growth?
A: (Victor Herrero, CEO) It depends on each period and market conditions. We opened 74 stores in the first six months, and the number of stores opened in the last seven weeks is not indicative of a trend. We open stores when we find profitable opportunities.
Q: Can you discuss price rises or how promotional management has occurred and any benefit in changing COGS, such as lower sourcing costs out of Asia or reductions in the cost of air freight?
A: (Christopher Lauder, CFO) Price management has been key, with ongoing adjustments to keep pace with inflation. Freight costs have improved slightly due to better logistics contracts, but the main driver of gross margin improvement has been price increases.
Q: Could you please talk more about the improving sales trend noted in the second quarter? Is it specific to certain markets or consumer-driven?
A: (Victor Herrero, CEO) The improvement in Q2 trends is broad-based across all regions. We are seeing positive comparable store sales in the first seven weeks of the second half.
Q: How are you thinking about the velocity of the rollout in China, and is the performance of the Chinese store meeting expectations?
A: (Victor Herrero, CEO) We are cautiously optimistic about China. We opened one store to understand the market better and will assess its performance before expanding further. The market has significant potential.
Q: Have there been any reductions in the number of hours worked per store location to manage costs?
A: (Christopher Lauder, CFO) We manage rosters to deliver the right level of service based on sales levels. While we aim to optimize costs, we prioritize customer service and avoid cuts that would negatively impact it.
Q: Can you provide some color on the timing of price rises and the sustainability of gross margins?
A: (Christopher Lauder, CFO) Price rises are embedded in the business and are ongoing. There is no significant one-off factor affecting gross margins, which we expect to be sustainable.
Q: Why is there a slowdown in the US store rollout?
A: (Victor Herrero, CEO) The US remains our largest market with 206 stores. The pace of new store openings depends on finding the right deals. There is no significant slowdown; we open stores when we find profitable opportunities.
Q: How long does it take for a new store to pay for itself?
A: (Christopher Lauder, CFO) It varies by store. Some stores pay for themselves within a year, while others may take longer. The timeframe depends on the store's performance.
Q: How important are Chinese marketplaces like Taobao and JD for Lovisa?
A: (Victor Herrero, CEO) Marketplaces are crucial for brand recognition and customer reach in China. We balance our presence on these platforms with physical stores to maximize market potential.
Q: What is the required level of return on investment for new stores?
A: (Christopher Lauder, CFO) We do not disclose specific ROI targets, but we ensure that new stores meet our profitability criteria before opening.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
