Lovisa shares plummet as chairman warns of FY19 uphill battle

Lovisa shares plummet as chairman warns of FY19 uphill battle

It's been a sweet ride for Lovisa (ASX: LOV) over the past two years, dodging market difficulties to turn substantial profits where many other retailers have failed.

But outgoing chairman Michael Kay today warned at the company's AGM that the time to shine is over as the fashion jewellery retailer will likely struggle to maintain its like-for-like (LFL) sales momentum in the year ahead.

LOV shares went into a tailspin during early trade, dropping by as much as 19.2 per cent following Kay's announcement that delivering the same level of LFL sales growth would be difficult going into FY19.

"Financial year to date we have seen some comparative weakness in the Australian market, which is still a disproportionately large part of our portfolio," Kay said.

"I said comparative weakness because as shareholders will be aware, we are cycling two years of very strong sales from fashion trends in our sector, which will make delivering the same levels of LFL sales growth more challenging in FY19."

During FY18, Lovisa opened a staggering 52 new stores around the world and established a pilot store footprint in both France and the United States.

Despite international business now accounting for 54 per cent of Lovisa's revenue, Kay has still dubbed the company's reliance on the Australian market as being "disproportionate".

He told shareholders that the company aims to reduce this reliance as "international expansion gathers pace".

"Continuing to expand internationally, where and when it makes economic sense to do so, is an important part of mitigating concentration risk in a world where countries are becoming more inward looking," said Kay.

Lovisa's presence in the US is still infantile and although the Californian retail market is one of the world's largest, Kay said the company will take a "measured approach" before putting more eggs into America's basket.

"We do get asked a lot of questions about the USA and we understand this is due to the potential size of the market," he said.

"If we can build upon the start in California and replicate this in other states, the US business clearly has the potential to be a significant part of the future of Lovisa.

Kay noted there is currently an oversupply of malls in the USA, so it is important that the company pick its battles judiciously.

"It is critical to be in the ones that attract strong foot traffic and to be in the right location within those better malls.

"As a result, it's important that we take a measured approach to establishing ourselves in this market."

At the time of writing (10:55am AEST), LOV shares are trading down 19.16 per cent at $6.79 which is the lowest trading price since December 2017.

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