Lovisa flags impressive start to FY23: Goldman Sachs claims long-term growth already factored in

In testimony to the resilience of young female consumers to inflationary and broader economic pressures, Lovisa (ASX: LOV) announced store sales growth of 16.1% over the first seven weeks of FY23, versus the previous period.

Within an update in advance of today’s AGM, management advised investors that total sales for the period are up 60% on the previous year.

The market was initially impressed with the discount jeweller’s update in the face of a more cautious outlook for discretionary spending, with the share price up around 3% at the open to a year-to-date high of $26.44.

However, the early morning gain was short-lived with the share price down around -6% an hour out from the open.

Is the upside already priced in

What may be lingering in the minds of investors this morning was yesterday’s cautionary note from Goldman Sachs.

Goldman acknowledges the company’s global growth strategy with a focus on store rollouts in Europe and North America.

However, the broker has initiated coverage with a Neutral rating (target price $29.25) having concluded that long term growth opportunity and very strong returns are for the most part already factored into the current price.

In short, with Lovisa having reached new highs, Goldman's notes the share price is starting to look a little toppy.

The broker also reminds investors the company is trading at a FY23 estimated P:E of 36.5x versus Australian/global discretionary peers trading on 12.0x/13.0x.

What may also be playing on the minds of investors is the fuller impact of cost-of-living pressures globally.

What does Lovisa do?

To the uninitiated, Lovisa is a fast fashion jewellery retailer with 676 stores across 26 countries at the end of FY22 with 47 net new stores opened year-to-date, including 61 new stores opened and 14 closures.

Four new markets have opened in recent months including Canada and Poland opened at the end of FY22, and more recently first stores in Namibia and Hong Kong.

To put the S&P/ASX200 company’s rate of growth in context, this time last year the group was trading with 100 fewer stores [five fewer markets] and in coming weeks will open its first stores in Italy, Mexico and Hungary.

What happened at the full year?

At full year FY22 Lovisa reported a 59% improvement in revenue and a 116% increase in after-tax profits.

The company declared a 37 cents per share, 30% franked final dividend double that of FY21, bringing full-year dividends to 76 CPS.

Despite covid-induced store closures, Lovisa’s comparable store sales were up 19.9% in FY22 on the previous period.

Management did not provide a trading update for FY23.

What other brokers think

Lovisa’s share price is up 16% over 12 months, and over five years has risen 340% from a low of $4.16 to $24.62.

Consensus is Moderate Buy.

Despite cost-of-living pressures, Citi notes consumer demand has largely held up and expects the retailer to report 29% total sales growth in the first half. 

The broker’s Buy rating and target price of $24.00 are retained.

Lovisa share price over five years.