LOV AGM trading update
LOV released a trading update with its AGM today. Store openings, sales and same-store sales (SSS) for the first 20 weeks were disclosed.
The stores were 836 (up 35) currently, about on track with my estimates of 75 for the full year, and sales were +17% compared to my 15% for the full year.
The SSS were -6% and this was quite a bit of a shock to the market, for a time anyway.
My understanding is that SSS are calculated for stores open for a full 12 months to take out what can be a lot of noise.
SSS can move around for several reasons, cyclicality, mix of stores and structural improvement or deterioration. The measure is less useful the more of a moving feast the base effect happens to be. LOV is certainly adding a lot of stores so we can, imo, expect volatility in the sss numbers. I don’t specifically assume a sss number but can back solve a small drop was my expectation but with less conviction and importance given the circumstances of strong store growth.
The big bear case is of course, that new stores are seeing a structural decline in profitability compared to the older stores. That is a conclusion that is premature in my view. Stores take time to achieve full run rate and again we have massive build-out occurring here.
I expect a fair degree of volatility in the LOV share price but stick by my view it's an accumulate in the $17’s, and bought some more this morning. The end prize still looks big to me.