Lovisa overcomes drab forecast, but still warns of hardship ahead

Lovisa overcomes drab forecast, but still warns of hardship ahead

When fashion jewellery retailer Lovisa (ASX: LOV) last made headlines in October, it followed a 19.2 per cent share price plummet which former Chairman Michael Kay warned was the beginning of a downward spiral that would last throughout FY19.

But today, at the release of the company's half year results, one might call out Kay's premonitions as being a tad on the pessimistic side.

Lovisa has lifted its revenue by 12.3 per cent to $133.2 million off the back of its new store rollout, also increasing its half-year gross profit margin by 13 per cent to hit $107.8 million. Net profits also improved by 2.7 per cent to hit $25.5 million.

Following this morning's market announcement, LOV shares spiked by as much as 24.5 per cent to trade at $9.64 at the time of writing (11:31am AEST).

While the figures have certainly improved, the company still errs on the side of caution saying that it has "not seen the same major trends in the fashion jewellery sector" that have underpinned its strong comparable stores sales growth.

"Whilst still delivering top line growth in the Australia and New Zealand market, Australia in particular was impacted by generally softer trading conditions, and combined with this market having outperformed over recent years resulted in negative comparable store sales for the half year," says the company.

Kay's 2018 prediction that the company will struggle to deliver the same levels of LFL sales in the year ahead may yet stand.

Managing director Shane Fallscheer says Lovisa will continue to pursue global expansion and continue to invest "ahead of the growth curve" in order to combat any challenging trading conditions.

"We are 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 despite more challenging trading conditions which contributed to negative comparable store sales," he says.

"The company has been able to continue to invest into the structures to support our global expansion ahead of the growth curve while still continuing to de3liver profit growth, and leaves us well placed as we move forward with store rollout in our newest markets in the US and France.

Lovisa opened 40 net new stores during the first half of the year, bringing the current total to 366 worldwide. As a result, capital expenditure increased by $5 million to $12.5 million.

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