LOV: Global Jewellery Rollout - Faster Than Its Peers, Cheaper Too
LOV: Global Jewellery Rollout - Faster Than Its Peers, Cheaper Too
In a Nutshell
Executive Summary
In a Nutshell
Lovisa is a global specialty retailer selling affordable fashion jewellery from small-format stores in premium shopping centres across 50+ countries. At A$26.21 against a fair value of A$33.09, the stock is undervalued by 26%. The key driver is a proven store rollout machine — 162 new stores in FY25, another 85 in a single half — that the market is discounting too heavily due to accounting complexity and two binary risks that are observable and time-limited.
Investor Profiles
| Profile | Rating | Rationale |
|---|---|---|
| Income | ★★★☆☆ | The FY25 dividend of 77 cents per share yields 2.9% at the current price, with roughly half franked. The payout ratio normalises from 99% to 90% in FY26, and dividends are forecast to grow alongside earnings. Income investors get a growing but modest yield — adequate rather than compelling, and vulnerable if the class action requires a large cash settlement. |
| Value | ★★★★☆ | At 9.6x FY27 EBITDA, Lovisa trades at a 13% discount to the peer median despite superior margins and faster growth. Our fair value of $33.09 implies 26% upside, supported by both a discounted cash flow and trading multiples analysis. The re-rating catalyst is visible — FY26 full-year results in August 2026 will either confirm or challenge the Jewells drag and store rollout assumptions the market is discounting. |
| Growth | ★★★★☆ | Revenue is forecast to grow at a 14% five-year compound rate, driven almost entirely by store deployment into underpenetrated European and American markets. Europe and the Americas currently hold roughly 660 stores against an estimated capacity of 1,500 to 2,000 — four to six years of visible runway remains. EPS is forecast to grow 23% in FY26 and 16% in FY27. |
| Quality | ★★★★☆ | An 83% gross margin sustained across six consecutive years is rare in physical retail and reflects genuine sourcing scale that no competitor has replicated. ROIC of 18% sits 700 basis points above the cost of capital, confirming that each new store creates value. The one quality blemish is CEO alignment — zero personal share ownership reduces confidence in long-term minority shareholder alignment. |
| Thematic | ★★★☆☆ | Lovisa is a direct beneficiary of the consumer trading-down trend: its sub-$25 average ticket is proving resilient while mid-tier discretionary spending weakens. The physical premium mall format cuts against the e-commerce disruption narrative, making this a contrarian thematic play rather than a pure structural tailwind story. Suitable for investors who believe affordable impulse spending is durable through a rate cycle. |
Lovisa suits value investors with a growth overlay best. The 26% discount to fair value provides a margin of safety, the re-rating trigger is dated and observable (August 2026 results), and the underlying growth engine — physical store deployment into proven markets — is straightforward to monitor. Investors comfortable holding through binary noise on Jewells and the class action are positioned to capture both the valuation gap and the earnings growth simultaneously.
Executive Summary
Lovisa sells affordable fashion jewellery — rings, earrings, necklaces — from small stores in premium shopping centres. It buys direct from manufacturers in China and India, skipping the wholesale layer entirely, which is why its gross margin sits at 83% — roughly five percentage points above its closest listed peer, Pandora. Revenue grows primarily by opening new stores, not by growing sales in existing ones, and the company has opened stores at a record pace: 162 in FY25, 85 in the first half of FY26 alone.
The most recent half-year confirmed the two-speed nature of the business. Australian and New Zealand comparable store sales declined 4.9% as domestic consumers pulled back on discretionary spending. European and American markets offset this with positive comps, and total revenue grew 23% for the half. The Jewells brand — a mid-tier jewellery concept Lovisa is quietly building — generated an EBIT loss of $10.8 million for the half, which is the market's primary concern alongside an undisclosed class action.
The investment case rests on three legs: an uncontested global niche with no scaled competitor in 15 years, a store rollout that has 4–6 years of visible runway in Europe and the Americas, and a valuation that prices in more risk than the operational track record justifies. At A$26.21 against a fair value of A$33.09, the stock is undervalued by 26%.
Results & Outlook
What happened?
FY25 revenue grew 14% to $798 million as Lovisa opened a net 162 stores — its highest annual store count on record. Gross margin expanded to 82%, extending a six-year improvement streak driven by sourcing discipline. EBITDA grew 12% to $247 million, though the margin dipped slightly as the Jewells brand moved from breakeven to loss-making. The business generated $207.9 million in operating cash flow and paid a 77 cent fully franked equivalent dividend, consuming virtually all reported earnings.
| Metric | FY24A | FY25A | FY26E | FY27E |
|---|---|---|---|---|
| Revenue ($m) | 698.7 | 798.1 | 971.0 | 1,131.0 |
| EBITDA ($m) | 221.3 | 247.3 | 302.1 | 348.1 |
| EPS (cents) | — | 78.1 | 96.3 | 111.7 |
| DPS (cents) | — | 77.0 | 86.7 | 100.6 |
| Store Count (end) | 900 | 1,031 | 1,155 | 1,305 |
| Gross Margin (%) | 81.0 | 82.0 | 82.2 | 82.1 |
What's next?
The FY26 first half, already reported, showed total revenue up 23% to $500.7 million with store count reaching 1,095. That pace — 85 net new stores in six months — is the real story: European and American markets are absorbing new locations at a rate that suggests no site quality deterioration yet.
The key variable for the second half and into FY27 is Jewells. The brand lost $10.8 million at the EBIT line in just one half, with no exit gate or unit economics disclosed by management. If that drag stabilises below $20 million per half, the market's discount is likely excessive. If it compounds, the thesis weakens materially.
Three dated catalysts matter most. August 2026 full-year results will confirm whether the Jewells drag is stabilising and whether the rollout maintained its pace. The October 2026 AGM may provide class action clarity. February 2027 first-half results will show whether European operating leverage is beginning to emerge — the payoff that justifies the investment phase.
Valuation & Risks
| Metric | Value |
|---|---|
| Fair Value | A$33.09 |
| Current Price | A$26.21 |
| Upside | +26% |
| EV/EBITDA (FY27E, market) | 9.6x |
| EV/EBITDA (peer median) | ~11x |
| Bull Case (20% probability) | A$47.15 |
| Bear Case (25% probability) | A$20.11 |
| Confidence | Medium |
The fair value of $33.09 blends a probability-weighted discounted cash flow ($34.77, 52% weight) with an EV/EBITDA peer comparison ($31.27, 48% weight). The two methods converge within 10%, which is reassuring given that one anchors to fundamentals and the other to market pricing. The primary risk to that valuation is not the store rollout or the gross margin — both have six-year track records — but Jewells and the class action arriving simultaneously. Jewells lost $10.8 million in a single half with no disclosed break-even target. An adverse class action ruling could cost between $50 million and $150 million in cash against an equity base of $108 million. If both materialise together, dividend suspension becomes likely and the stock would re-rate toward the bear case of $20.11. Neither outcome is the base case, but investors should size accordingly: this is a 2–4% portfolio position, not a concentrated bet.