All eyes are on this fashion stock as a barometer for consumer spending

Main products: Fast fashion jewellery, in the $5 to $50 price range.

Key figures: Chairman Brett Blundy, chief executive officer Victor Herrero.

The bull case: Despite jitters about slowing consumer spending, recent retail figures have shown consumers still have cash to deploy, including into fashion and accessories. Clothing, footwear and fashion spending rose 1.3 per cent in June, hitting $2.9 billion.

Analysts say Lovisa, with its network of hundreds of stores across Australia and overseas, is well-placed to capture this spending enthusiasm.

“We expect the strong sales recovery and international store rollout to remain significant tailwinds for Lovisa over the medium term, driving solid earnings growth,” Jarden analyst Wilson Wong said in a research note to clients earlier this month.

Wilson Asset Management portfolio manager Oscar Oberg says companies that offer fashion for events are well-placed in this environment.

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“It’s now about those companies who are exposed to ‘going out’ apparel – dresses, suits, jackets and that kind of retail,” he told The Age and The Sydney Morning Herald a fortnight ago, citing Lovisa as a potential winner from this trend.

The bear case: Lovisa shares are down 2.9 per cent so far this year and declined to $12.89 in June, amid a broad sharemarket sell-off. They are changing hands for about $19.40 this week.

Company watchers who are more cautious about the stock are asking whether it can maintain sales momentum if consumer spending slows further.

UBS downgraded its rating on the stock to “neutral” this month, noting that a bounce-back in the share price over the past month in the lead-up to its full year financial results makes the risk/reward trade-off less compelling.

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Then there are the rising costs of doing business, which are impacting margins for retailers across the board.

“Near-term headwinds for Lovisa include labour and supply chain costs, yet we expect these can be well managed with scale and price optimisation, e.g. promotional bundles, re-ticketing,” UBS analyst Shaun Cousins wrote.

Lovisa is also looking to grow its global store footprint, but has warned investors this has been slower than expected in the first half of the year because of COVID-19 interruptions and labour shortages.

Jarden’s team says it will wait for an update on how new store rollouts are performing.

“We estimate Lovisa added 39 net new stores in 2H22E, which implies 22 net new stores from May to June 2022,” Wong and his team said.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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