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
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
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. If a celebrity wears a certain type of jewellery, it’s a good bet the retailer has a cheap version soon after
It is a low cost spend for its clients
- the trend of “mass-market luxury”. That is, consumers wanting fancier clothes, jewellery, cosmetics, food and travel – without the price tag. Low- and mid-priced jewellery perfectly fit the bill.
- tends to remain relatively resilient even when consumer spending weakens more broadly.
- The retailer has a strong customer value proposition as teenagers and twentysomething girls favour cheap, disposable jewellery (the average Lovisa item is about $20). Young girls who buy cheap jewellery, often worn only a few times, tend to make more store visits and repeat purchases
- the product does not lend itself to online shopping (Amazon), because of its low price, and the impulse nature of the purchase.
Strong inventory management and limited sale and price markdowns have helped it maintain margins. Unlike many retailers, Lovisa has had moderate discounting.
LOV's non-executive director, Tracy Blundy, is a major shareholder with 41% of the register.
LOV is in a very strong uptrend. Some brokers have 12-month price targets above $5 as Lovisa rapidly expands overseas.
There is plenty of evidence of growth in disposable clothing, jewellery and other fashion items.
The long-term trend of “tweens” (girls aged 8-14) spending more on fashion is compelling.
Potential growth profile across international markets.
- Operates in 9 geographies.
- They are only at the beginning of their international store roll out, which accounts for 36% of group sales.
- South Africa remained Lovisa’s fastest growing market in terms of store openings, with 14 new locations in the country, alongside a company-owned pilot in Spain and franchise launches in Vietnam and Bahrain bringing the total network of stores to 288.
- There are seven Lovisa stores in the UK with 13 stores expected to be trading by August.
- Potential for a larger Northern Hemisphere expansion.
- Lovisa plans to open between 20 and 30 stores in FY18
Lovisa’s FY17 Price Earnings (PE) multiple of about 14 times is not excessive for a retailer that is beating market expectations and has a growing offshore footprint.
- Low Barriers to Entry into the fast fashion jewellery market
- Competition/ Copycats is expected to increase
- Discount department stores are probably the biggest threat, but they do not offer the same product range, in-store experience or speed to market as Lovisa.
- Foreign exchange risk
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