Up 30% in 3 months, why Lovisa shares can keep sparkling: UBS

The Lovisa Holdings Ltd (ASX: LOV) share price has risen by 30% in three months and 80% in five months. It has been on a very strong run.

The jewellery retailer has been reporting a lot of growth in both FY22 and the start of FY23.

Impressive growth

The ASX retail share saw its total revenue rise by 59.3% to $458.7 million in the 2022 financial year. It saw “strong momentum through the financial year”. Comparable store sales went up 19.9% and it opened 85 net new stores during the period – finishing with 629 at the year-end.

FY22 total gross profit increased by 63.8% to $361.8 million, earnings before interest and tax (EBIT) went up 86.6% to $79.7 million, and net profit after tax (NPAT) rose 116.3% to $59.9 million.

In the first 19 weeks of FY23, global comparable store sales increased 16.1% compared to FY22 for the year to date, with total sales for that period up 60%.

It has opened 47 net new stores in the year to date. It recently opened in the new markets of Canada, Poland, Namibia, and Hong Kong. Lovisa is also planning to open its first stores in Italy, Mexico, and Hungary in the “coming weeks”.

Broker views on the Lovisa share price

As reported by the Australian Financial Review, the broker UBS increased its price target from $20 to $29. That’s an increase of 45%, so the broker is much more optimistic about the outlook.

It thinks that the store rollout plan by Lovisa is “compelling” when compared to global peers. Despite the bigger number of stores, UBS notes that the growth is accelerating.

The growth of the size of Lovisa’s store network led to UBS bumping up its earnings per share (EPS) forecasts by 24% for FY23 and 35% for FY24.

UBS thinks that Lovisa can grow its revenue to $958 million in FY25, up from $459 million in FY22. Part of the confidence for this projection is due to new CEO Victor Herrero, who has prior experience in growing a business.

UBS suggested that the business has “significant store growth potential across both existing and new markets”, while the ASX share’s younger core customer base and lower pricing point means it can handle this environment well.

The broker also suggested that becoming larger with a bigger store count can help the business grow its profit margins, which can offset the start-up costs in new markets.

Lovisa share price valuation

The Lovisa share price closed on Monday at $24.45. If Lovisa shares reach $29, that would be a potential rise of almost 20%.

At the current level, the retailer is valued at 32x FY23’s estimated earnings and 24x FY24’s estimated earnings.

The post Up 30% in 3 months, why Lovisa shares can keep sparkling: UBS 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 Lovisa Holdings Ltd. The Motley Fool Australia has recommended 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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