Lovisa (ASX:LOV) is one of the holdings in Glennon Small Companies Limited (ASX:GC1). For those who don’t know, or haven’t seen one of their physical stores, they are in the business of selling affordable women’s jewelry. We have owned the company before, being attracted to their high margins and offshore expansion strategy. They operate 460 stores in a number of international markets, selling mainly earrings, hair bands, necklace, wrist and ring and body fashion at an affordable prices.
Pending offshore recovery
LOV’s revenue and profit were largely impacted by government responses to the COVID-19 outbreaks. Domestic sales were flat and international sales were down by 19%. A lot of international stores were closed or operating with a weak foot traffic due to lockdown. With the global vaccine rollout, we expect all international stores to fully open soon and fuel a strong recovery to the business.
Store network expansion
LOV expanded its store network through acquiring stores from a distressed European retailer. LOV has 460 stores, 134 of those in Europe. During the pandemic, LOV utilised its strong balance sheet and acquired 114 stores for only €70. Around 90 stores will be converted to LOV stores and the remaining stores will be closed. This will allow LOV to expand its European store network by two third.
It is an attractive deal for LOV. The acquired business has a total of €11.8 million of cash, €6 mil will be spent on implementation costs and working capital investment. Through this acquisition, LOV will enter into 6 new markets (Germany, Switzerland, Netherlands, Belgium, Austria and Luxembourg).
We believe LOV will perform strongly post pandemic. The Company shows potential to recover internationally when the stores reopen. Moreover, the Company has shown that it can utilise its strong balance sheet to acquire stores from distressed competitors, which is a pathway to grow.
Till next week, happy investing.
Michael and Kenny