LOV.AX - Cheap disposable fashion jewellery



GENERAL THOUGHTS

  • Cheap fashion jewellery and accessories retailer.

  • Lovisa’s product concept of disposable fashion jewellery aimed at teenagers and young adults.

  • Attempting to emulate the early success of fashion stationery chain Smiggle

  • When Lovisa was launched it was set up as a vertically integrated retailer. It allows the company to quickly adapt its product range to changing global fashion trends and respond to customers. It's a model common among international retailers such as H&M and Zara.

  • Lovisa's in-house design team develops the jewellery with orders delivered every six to 10 weeks from a range of overseas suppliers.

  • Lovisa has around 15,000 pieces of jewellery instore and introduces 100 new designs on a weekly basis

  • The key success drivers of Lovisa derive from ability to offer on-trend and well priced fast fashion jewellery

  • Bought with GAP UP on 24 Aug

TRADING PLAN

  • Portfolio Equity = 100k

  • Risk = 1%

  • ATR Multiple = 2

  • Recommended Quantity = 1,000 shares

  • Initial Buy = 1,000 shares @ 4.65

  • BOUGHT @ $4.45 - SOLD @ $4.59 (FEAR!)

  • 07 Sep: BOUGHT BACK @ $.4.65

  • Target: $8.0

ANALYSIS

STRENGTHS

  • Strong Financial Health.

- Exceeded consensus forecasts by booking double-digit revenue, earnings and profit increases.

- Revenue increased by 16.5% to $178.7 million for the year ended 30 June.

- Strong top line sales drove a 68% increase in EBIT to $40.7 million and a 75.5% increase in net profit after tax (NPAT) to $29 million.

- Gross margins increased by 78.8% during the year

- Cost of doing business (CODB) as a percentage of sales reduced to 53%

  • About Right Value based on:

- Future CF (Simply Wall) @ $4.88

- Lincoln Consensus Price Target @ $4.87

- ValueFrog: $5.00 (John Price); $8.00 (Roger Mont); $15.10 (Ben Graham); $10.29 (WB)

- Macquarie’s $5.06 price target for Lovisa over 12 months

  • Fast-fashion business model

- Allows it to turn over stock rapidly and quickly adapt its product mix to any changing trends.

- It is fast fashion, with the inventory being replaced up to 10% in a week.

- Social media is a huge driver of disposable fashion. Rather than make products on a seasonal basis, Lovisa responds to emerging fashion trends and what’s hot on social media.