Lovisa’s Growth Faces Test as EBIT Incentives Miss Targets and Legal Risks Loom

Strong Financial Performance Amid Global Expansion

Lovisa Holdings Limited has delivered another year of solid growth, reporting a 14.2% increase in revenue to A$798.1 million for the 52 weeks ended 29 June 2025. This performance was underpinned by a net increase of 131 stores worldwide, bringing the total store count to 1,031 across more than 50 markets. Earnings before interest and tax (EBIT) rose 8.2% to A$138.7 million, while net profit after tax increased 4.8% to A$86.3 million.

The company’s expansion strategy continues to focus on securing prime retail locations with high foot traffic, leveraging a consistent store format that facilitates rapid rollout and cost efficiency. The store growth was geographically diverse, with new openings across Asia-Pacific, Africa, the Middle East, Europe, and the Americas, including the company’s first store in Zambia.

Operational Highlights and Strategic Initiatives

Lovisa’s gross margin improved to 82.0%, reflecting effective pricing strategies and tight control over product costs and inventory. The company invested A$55.2 million in capital expenditure, primarily for new store openings, refurbishments, and enhancements to IT systems and supply chain capabilities. Despite inflationary pressures and higher operating costs, Lovisa managed to maintain profitability through operational efficiencies and a reduction in executive incentive expenses.

Key strategic pillars include continued global store expansion, supply chain optimization with warehouses strategically located in Australia, Poland, the USA, and other regions, and enhancing store performance through targeted closures and service innovations such as expanded piercing offerings. The brand’s proliferation is supported by a strong social media presence and digital sales channels, ensuring engagement with a global customer base.

Leadership Transition and Executive Remuneration

In June 2025, Lovisa appointed John Cheston as Global Chief Executive Officer, succeeding Victor Herrero. Cheston brings over 30 years of retail leadership experience, including a successful tenure at Smiggle. His remuneration package includes a fixed annual salary of A$2.35 million and performance-based incentives linked to EBIT growth, with potential long-term incentives valued at over A$7 million across three years, subject to shareholder approval.

The company also appointed Mark McInnes as Executive Deputy Chairman, with a consulting agreement reflecting his extensive retail experience. The remuneration framework balances fixed pay with short- and long-term incentives aligned to company performance, although the FY25 EBIT growth of 8.2% fell short of the 18.5% threshold required for vesting of certain long-term incentives.

Risk Factors and Market Challenges

Lovisa acknowledges several risks including intense competition in the fast fashion jewellery sector, sensitivity to economic conditions affecting discretionary spending, supply chain disruptions, currency fluctuations, and the need to anticipate changing consumer preferences. The Group’s geographic diversification and investment in e-commerce channels help mitigate some of these risks.

Additionally, the company is defending a class action related to alleged employee underpayments in Australia, the outcome of which remains uncertain. Financially, Lovisa maintains net debt of A$34.4 million and has extended its debt facilities to 2026, supporting liquidity and ongoing growth initiatives.

Outlook and Market Positioning

Lovisa’s continued store network expansion and focus on operational excellence position it well to capitalize on global market opportunities. The company’s ability to adapt to fashion trends and maintain competitive pricing will be critical in sustaining growth. Investors will be watching closely how the new leadership team executes on growth strategies and manages the evolving retail landscape.