Release Date: February 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lovisa Holdings Ltd (ASX:LOV) reported a solid growth in total sales of 8.8%, driven by the expansion of its store network.
• The company achieved a gross margin improvement of 170 basis points, reaching 82.4%, due to effective management of pricing and promotions.
• EBIT increased by 10.7% to $90.2 million, showcasing strong operational performance despite inflationary pressures.
• The company announced an interim dividend of $0.50 per share, reflecting its strong cash flow and balance sheet position.
• Lovisa Holdings Ltd (ASX:LOV) successfully expanded its global footprint, opening 57 new stores and entering new markets like Zambia.

Negative Points

• The pace of store rollouts was slower compared to previous years, which could impact future growth momentum.
• The Asian market remains challenging, with subdued performance and opportunities for improvement.
• Higher effective tax rate of over 29% impacted net profit, compared to 26.4% in the prior period.
• Cost of doing business increased due to investments in team structures, technology, and supply chain, affecting overall profitability.
• Comparable store sales growth was flat at 0.1%, indicating potential challenges in driving organic sales growth.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Sign with ASX:LOV.

Q: Could you elaborate on the strong gross margins and the factors contributing to this performance? A: Victor Herrero, CEO: The strong gross margins are a result of consistent efforts over the past four years, including strategic pricing, negotiating better terms with suppliers, and careful management of promotions. We aim to continue improving our gross margins in the future.

Q: Can you discuss the cost of doing business and the impact of investments in team structures and technology? A: Chris Lauder, CFO: As we expand into new markets, the cost base shifts, impacting the cost of doing business. Investments in supply chain, such as the new US warehouse, and team structures are necessary for supporting growth. These costs are expected to continue as we scale.

Q: What is the strategy for store rollouts in the US, and how are you managing site availability and costs? A: Chris Lauder, CFO: We slowed down the rollout to ensure operational efficiency but are now looking to grow again. Site availability and costs vary, and we focus on securing deals that meet our return hurdles without compromising on quality.

Q: How is Lovisa responding to potential impacts from a US-China trade war? A: Chris Lauder, CFO: We monitor tariffs closely, which currently add about 10% to costs for US imports from China. We anticipate market-wide price adjustments and are exploring supplier diversification in Southeast Asia to mitigate impacts.

Q: Can you provide insights into the performance and potential of different regional markets, particularly Asia and Europe? A: Victor Herrero, CEO: Europe has been a key driver with significant store openings, while Asia presents challenges but also opportunities for improvement. We continue to explore growth in both regions, with a focus on strategic expansion.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.