Chinese manufacturing slowdown to impact Lovisa sales

Chinese manufacturing slowdown to impact Lovisa sales

While Lovisa has been hindered by supply chain troubles and in-market softening in some Asian markets, the retailer has found glistening opportunities in the US where sales have risen almost 10-fold to become more than one eighth of total revenue. 

Australian jewellery retailer Lovisa (ASX: LOV) expects sales to slow over the coming months as manufacturing and exports idle in China.

The outbreak of coronavirus Covid-19 in China has resulted in factories being put on pause for a lengthy period of time, leaving Lovisa's warehouses without vital stock.

Lovisa has been impacted by delays in its warehouse that replenishes its Northern Hemisphere and South African markets, which is only now ramping back into capacity after the extended Chinese New Year break.

"We expect to see further impacts on sales over coming months as a result of these factors, however the size of any impact cannot currently be reliably estimated and is heavily dependent on the length of time of the current disruptions in China," says Lovisa.

"We are focused on doing all we can to work with our suppliers to maintain stock levels in our stores and minimise the impact on our business."

The impact of Covid-19 has also been felt in-store at Lovisa, with the retailer witnessing a slowing of trading performance in the Singapore and Malaysian markets.

Lovisa's dejected outlook is in stark contrast to an otherwise glowing 1H20 for the jewellery merchant.

The group saw revenue grow by 22.2 per cent to $162.8 million, and NPAT growth of 9.1 per cent to $27.8 million.

Managing director Shane Fallscheer says Lovisa's strong performance, in spite of the industry-wide 'retail apocalypse', is driven by a growing store footprint. 

"We are pleased with the momentum of the store rollout during the period which has again delivered us strong top line sales growth, and despite the investment required to deliver this growth we have also managed to deliver solid growth in profit," says Fallscheer.

During 1H20 Lovisa opened four new stores in the UK, 10 in France and 21 in the US.

In Australia the company saw its revenue grow by around $5 million to $82.7 million, but the best performing market by growth at the half year was the US, where revenue grew from $1.4 million to $12.3 million.

Shares in Lovisa are up 3.83 per cent to $11.40 per share at 12.29pm AEDT.

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