Lovisa is a good retailer and has been doing well but it's too expensive for me. Compared to Nick Scali for example its a much riskier proposition -

Lovisa Nick Scali

Founder on Board in Brett Blundy but he's very diversified Founder CEO and totally focused

CEO is grossly overpaid at $20 million annually and owns 2% CEO is paid $1.5 million annually and owns 14% of the company

EPS growth over past 6 years of 13% p.a. EPS growth over past 6 years of 21% p.a.

Sales per share growth over past 6 years of 22% p.a. Sales per share growth over past 6 years of 17% p.a.

ROE of 85% and ROC of 17% ROE of 56% and ROC of 22%

Debt to equity of 465% (includes leases) Debt to equity of 176% (includes leases)

Net profit margin of 11% p.a. and going sideways/declining Net profit margin of 20% p.a. and growing

Owns $370 million of its own properties and equipment Owns $320 million of its own properties and equipment

Has $65 million in non lease debt vs $30 million in cash Has $91 million in non lease debt vs $149 million in cash

More international potential and going well but adds complexity Less international potential but still planning to double domestic store count

Currently trading at 30 times EPS Currently trading at 9 times EPS

Bottom line for me is that they are both great businesses and retailers but there are a few more warts on Lovisa and I have to pay three times the price to own it. So, not much needs to go wrong for the multiple to compress in Lovisa, which is much less likely with Nick Scali.

IRL I own NCK but not LOV at present.

Hi all, I'm new here so go easy, but could this the best business on the ASX or am I living in a pipe dream?

IRL this is my second biggest holding currently for the following reasons. Please tear this apart and tell me if I'm dreaming on any of the points below. Have I missed something obvious here?

• When I think of this company in terms of 'Fast Fashion' as opposed to just another Jewelry store the thesis seems to stack up given their uncanny ability to release 100+ new designs every month based leveraging data insights to drive tailored production

• Consistently high gross margins (70%+) even with rising interest rates.

• In house design, swift distribution and incredibly high inventory turnover.

• Low rent, low cost store front, small cubic footprint manned by a single staff member designed perfectly to maximize profitability and reduce wastage. Disciplined store management for 5+ years.

• MOAT: Some say there is no MOAT with Lovisa, but I beg to differ. Their ability to collect data from all of their stores on what customers a purchasing and when + margins. This data is fed back to the design team to quickly change designs based on current fashion trends. This data set cant be easily reproduced by competitors unless they have spent 5+ years in the market, Lovisa already has this at their fingertips. Based on this, it seems difficult for a competitor to come in and steal Lovisa's lunch. Secondly, for a competitor to match their inventory turn, that competitor needs to have an in house production facility which is CAPEX heavy. I don't see a small competitor coming in, outsourcing design and manufacturer and being able to compete easily here.

• Whilst I dislike the CEO's pay packet last year, he has completed mass global store roll outs in China previously with Zara with great success. International expansion is just getting started, nowhere near the peak

• Lovisa seems disciplined in their store management which has allowed them to maintain impressive margins. With Brett Blundy being a 40% shareholder, and a retail genius I can't see him allowing this to change. (in saying that, if he sells his stake, then that's a worrying sign for me!)

This screams buy to me with a 5+ year time horizon, with an EV/EBIT of 18 and consumer discretionary spending not being suppressed forever is it not great value?

Am I dreaming? Please tear it apart.

Yours faithfully,

McLovin

@LifeCapital thanks for sharing, as i said in my preso (as i recall lol), singing favourable leases is the biggest hurdle i see to growth, perversely strong retail trends (good for sss) probably embolden landlords to ask for higher rents, so a weak environment is probably preferred through the lease sign up stage, or at least not strong. signing a poor lease is one of the worst things a retailer can do, as i recall the leases are 3-5 years in length so you are burdened for a while. LOV exited Spain due to this reason, as i recall, now back in.

i have already done some buying in the low $18, a $17 handle i would buy more, it is volatile but has been one of my best stories for a while

disc held

@LifeCapital Thanks for sharing the intell.

Personally, I don't mind if the rollout pace moderates. CEO Victor Herrero has made clear that its about getting the right locations with the right lease deals. US retail is still in rude health, as evidenced by overnight's retail sales numbers for September and strong upward revision for August. Should retail start to hit choppy waters, that's when you'd expect to see $LOV get more aggressive on doing lease deals.

I may be wrong altogether, but I see slowing numbers growth as evidence of capital discipline. A big part of my investment thesis is the unit economics at the store level.

All that said, I'd like the SP to weaken on this one, as I am only holding about one-third of my intended position in RL based on the view that there is more retail pain to come.