They say diamonds are a girl’s best friend, but higher cost of living and slower growth in discretionary income might hinder young Australians into spending so much on high-ticket fine jewelleries. Instead, they have been seeking alternatives in affordable fashion jewelleries that of course, require far less commitment than buying real diamonds. For fashion jewellery retailer Lovisa (ASX: LOV), this equals a great momentum to boost sales and profit growth, as reflected in its Half Year result.
Being the major player in the Australian fashion jewellery retailing industry with 22.7% market share, Lovisa reported a revenue increase of 44.8% to $315.5m from $217.8m in the previous corresponding period (pcp). Net profit after tax also jumped by 31.9% to $47.7m compared to $36.2m on pcp.
Reflecting the increased profit, Lovisa has declared an interim fully franked dividend of 38.0c per share, up from their 37.0c per share on pcp.
Lovisa now has $24m net cash at bank after previously securing $52.7m in H1 FY22. This can be tied to major store network growth, with 86 stores opened around the world during the period.
New store openings were the major driver of the total growth in sales by 24% compared to H1 FY22, with 12.5% comparable store sales. The USA market was again the main driver of store network growth with 39 new stores opened in the period.
Chief Executive Officer Victor Herrero said, “We are very pleased that we have been able to increase the momentum of our store rollout during the half which has again delivered us strong top line sales growth, and combined with continued double-digit comparable store sales has resulted in an excellent financial result for the period”.
“The company has been able to continue to invest in the structures to support our global expansion ahead of the growth curve while continuing to deliver profit growth, which leaves us well placed as we move forward with store rollout in both existing and new markets.”
Inflationary pressures are inevitable, therefore Lovisa implemented price increases in Q3 FY22, which helped to deliver strong sales growth through Q4 FY22 and carried through to H1 FY23. Despite pullback in discretionary spending trends, the price increases had minimal impact on sales volumes.
All markets continued to grow strongly in the half year with Asia recovering well from disrupted sales in prior years due to pandemic store closures. Lovisa now operates 715 stores globally across over 30 countries including 7 new markets opened in the half year in Namibia, Hong Kong, Mexico, Italy, Hungary, Romania and Colombia (franchise).
Aside from retail store success, online retailing has grown at pace as consumers have become more familiar with researching, evaluating, and purchasing products online. IBISWorld’s data on Fashion Jewellery Retailing in Australia suggests that in 2023, 9.8% of the industry’s annual growth will be driven by demand from online shopping.
Ensuring that online sales opportunities aren’t going to be left untouched, Lovisa is enhancing digital visibility by partnering up with global online marketplaces. The Company opened up its first online marketplaces during the half year in Europe (Zalando, Kaufman) and the USA (Simon Premium Outlets).
Since the end of the Half Year, Lovisa have received conditional approval from financiers for extension of its finance facilities to $100m to support future growth in the store network.
Fashion is fickle. While appeasing the complex demands of trend-focused consumers, retailers like Lovisa are garnering demand by offering affordable and accessible jewellery that keeps pace with consumer trends. These accessible fashion jewellery resonates a lot with consumers during elevated economic uncertainty and precarious consumer sentiment, contributing to an annualised 0.8% rise in revenue over the five years through the end of 2022-23 to $745.5m.
Clara is a Business Reporter for The Sentiment.
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