Here’s why the Lovisa share price leapt 8% on Monday

The Lovisa Holdings Ltd (ASX: LOV) share price is one of today’s strong performers. It’s up by 6% at the time of writing, after touching nearly 8.5% in early trade on Monday.

The affordable jewellery retailer has received a boost thanks to news announced after the market closed on Friday last week.

Index inclusion

Every three months, the ASX indices are reviewed by the S&P Dow Jones Indices to see if any changes need to be made.

A large increase in a company’s market capitalisation can lead to a business being included in an index. Meanwhile, a large decrease in the share price of a business can lead to it being kicked out of an index.

It’s good news for Lovisa that its share price has gone up so much – over 80% since mid-June. That means it will be included in the S&P/ASX 200 Index (ASX: XJO). It’s not the only company being added. Names like Sayona Mining Ltd (ASX: SYA) and Johns Lyng Group Ltd (ASX: JLG) are also joining the ASX 200.

Names getting kicked out of the ASX 200 include Life360 Inc (ASX: 360), EML Payments Ltd (ASX: EML) and Zip Co Ltd (ASX: ZIP).

The changes will happen on 19 September 2022.

What has driven the Lovisa share price higher?

Investors had been expecting Lovisa to report a significant increase in profit in FY22. This was proven when it released its report at the end of August.

Revenue went up by 59.3% to $458.7 million, gross profit increased 63.8% to $361.8 million, and earnings before interest and tax (EBIT) grew 86.6% to $79.7 million, and net profit after tax (NPAT) soared 116.3% to $59.9 million. The company more than doubled its dividend to 37 cents per share.

Lovisa explained that once stores were able to open, and trading and restrictions were lifted, it was able to deliver “strong growth” across all markets as economic conditions improved. It maintained growth across the financial year.

Growth has continued strongly in FY23.

Trading for the first seven weeks of FY23 has seen a continuation of the strong performance of FY22, with comparable store sales growth of 21% compared to FY22. Total sales for the FY23 period were up 66.1%, with the prior year impacted by lockdowns.

Since the end of FY22, it has opened in two new markets. It has opened two stores in Hong Kong and one store in Namibia. It has opened 22 new stores year to date, reaching a total of 651 stores.

Lovisa said:

We continue to focus on opportunities for expanding both our physical and digital store network, with structures in place to drive this growth in existing and new markets and expect rollout momentum to increase going forward. Our balance sheet remains strong with available cash and debt facilities supporting continued investment in growth.

Lovisa share price snapshot

Since the beginning of 2022, the Lovisa share price has risen around 17%.

The post Here’s why the Lovisa share price leapt 8% on Monday appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments, Johns Lyng Group Limited, Life360, Inc., and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended EML Payments. The Motley Fool Australia has recommended Johns Lyng Group Limited and Lovisa Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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