Fashion jewellery retailer Lovisa (ASX:LOV) shares plummeted sharply on Tuesday after the company's 2023-24 results were met with disappointment by analysts and investors.
While the results aligned with market forecasts, showing double-digit increases in sales and earnings, these gains were primarily driven by store expansion rather than improved performance in existing stores.
Lovisa is an impulse-driven retailer, relying heavily on its female customer base making small, casual purchases. This makes it easier to achieve top-line growth by opening more outlets but more challenging to generate repeat sales and boost same-store sales.
Despite a successful year, with sales revenue up 17.1% to $698.7 million and EBIT increasing by 21.2% to $128.2 million, the company's performance was tempered by a 2% decline in same-store sales.
While Lovisa announced a final dividend of 37 cents per share, surpassing market expectations, investors were unimpressed, sending the shares down by more than 13% at one point.
The company attributed its strong financial performance to careful pricing and promotion management, which helped to offset inflationary pressures.
Lovisa has also paused its expansion efforts in certain countries, such as Taiwan, Hungary, Romania, and Mexico, indicating a potential slowdown in its growth strategy.
However, the company continues to open new stores, with 8 stores added in the early weeks of the new trading year. Analysts are questioning whether this expansion will meet market expectations of 80 to 85 new stores.
Additionally, the early trading update for 2024-25 was less than inspiring. While same-store sales grew 2%, this was significantly slower than the 12.7% increase in overall sales and fell short of market forecasts.
