Forum Topics LOV FH25-- mixed bag (again)
Solvetheriddle
Added 10 months ago

LOV FH25 –a mixed bag (again)

Sales up 9% (expecting 10% for FY)

PBT up 11% (expect 11% for full year)

NPAT + 7% due to tax rate changes and tax loss accounting

GOOD

Europe and Canada store rollouts were good.

GM 82.4% (see below) at a record, LOV explained due to better supplier terms, being careful on promotions, and better pricing. Good result.

Inventory looks better after drifting over the last couple of years.

Comps 0.1% in 2H but +3.7% in first 7 weeks of 2H.

DISAPPOINTING

Store rollout was slower than expected, with 47 net versus 60 expected. LOV admitted slower than expected but cadence has lifted in q2. CEO (retiring) predicted more stores will be added in 2025 than 2024, implying over 1000 by year-end, est 1020. So overall, it's a bit slower. The US was a standout disappointment, and LOV forecast that the US should start to pick up in 2H (+2 in fh—low). Store roll-out cadence appears to be picking up, we shall see. Ohio DC (US) opened in August so part period and should gain momentum from now.

Asia is challenging and IMO LOV is a Europe and an Americas story, I have no big hopes for Asia, especially China, maybe a few of the peripheral markets can do well. LOV commentary is supportive of growth. LOV continue to analyse China (it's tricky IMO).

OTHER

Spoke to the competition, and said they see a new competitor somewhere in the world every week, LOV believes (as I do) they have a competitive advantage in superior supply chain (scale) and product innovation speed to market.

Lack of scale in various markets is in the results (drag). The CODB is changing as more expensive markets increase in the mix. Usually takes a few years for a store to mature.

Tariffs, not changing suppliers and believe most likely is cost will be passed through in the US by the industry. Ed. Maybe some volatility. They note that their Chinese suppliers are moving factories into SE Asia. I note that given LOV’s tight supply chain (its advantage) that they run changing suppliers is not an easy decision.  

OVERALL

I think the positives outweigh the negatives, seeing some store rollout momentum from here is important. Having said that I will have to roll back my store rollout assumption which is 120pa then slow in a few years to 100. Not expecting a big change due to this. Underlying profitability measures are still impressive for LOV.  

I was quite nervous going into this result given the CEO change could have seen an air pocket, maybe we have seen that but not too bad.


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mikebrisy
Added 10 months ago

Great write-up @Solvetheriddle.

With today's SP response this one is starting to head back into my "buy" zone. Although, that said, I think I will need to update my store rollout scenarios for a more modest set of scenarios, which will lower my range. (i'm eye-balling an out-of-date model.)

I think the comparison between the US and Canada is interesting, and perhaps gives some insights into $LOV's capital discipline.

From my research, both the Canadian and US markets have strong retail sectors when we look at retailers seeking to secure store space. This is a combination of the ongoing recovery of physical retail from the post pandemic environment, coupled with the resurgence of bricks-and-mortar retail as more and more retailers have built out their omni channel offerings, renewing demand for physical space. OK, no great insight there. However, while it looks to me like retail lease rates (per square foot) have increased in both markets, growth in asking rates in the US (closer to +2%) has been stronger than Canada (less than 1%).

That might not seem like a big difference. But it is a macro-whole-of-market aggregate, and the spread in growth rates potentially reflects a significant difference in the available negotiating headroom. (I write this, having no personal experience in this area!!)

It also clear that for much of the half, the Canadian consumer demand was relatively weak (although it picked up strongly in December), and so it make sense when looking at the macro retail environment that conditions for negotiating favourable leases were better in the period in Canada than the US.

Why this is interesting to me, is that Canada has the potential to ultimately achieve the scale of Australia and I've often wondered why they were so slow in getting going. It looks like they are moving there now!

Europe at +39 also coming along nicely.... steadily.

I think your point about competition is a good one. $LOV is now at a scale where the main competitors are the established big retailers in the space. While there might be a new, disruptive, "on trend" player that emerges, we will see them coming, as whoever they are, their scaling will take years. But it is always good to be on the lookout.

Disc: Not held

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