Lovisa’s global rollout creates a bigger test for comparable sales

Store rollout drives Lovisa past 1,100 locations

Lovisa Holdings Limited (ASX:LOV) is still producing impressive headline growth, but its latest annual report makes clear that the global store rollout is doing more of the work. Revenue rose 17.6% to A$938.8 million in FY26, EBIT increased 14.1% to A$158.2 million and net profit after tax climbed 10.7% to A$95.6 million.

The retailer opened 160 stores during the year and closed 43, with a further 12 relocations, leaving 1,136 stores across more than 50 countries. Europe and the Americas remained the main growth engines, with regional sales increasing 29.5% and 29.6% respectively. The result builds on the FY26 results announcement, which highlighted the same store expansion and dividend lift before the full annual report filled in the operational detail.

That network growth came with a more selective edge than the gross opening number suggests. Lovisa says it closed underperforming sites as part of its focus on profitable growth, while 53 stores were delivered in its Series 5 format. Another 28 Series 5 refurbishments are scheduled for the first half of FY27, adding to the capital and execution demands of an already sizeable retail estate.

Comparable sales and incentive hurdles fall short

The less comfortable number is comparable store sales growth of 2.0%. Chairman Brett Blundy described the result as below the level Lovisa needs to achieve. The figure matters because it strips out much of the benefit from opening new stores and offers a cleaner test of underlying demand across the existing network.

Lovisa’s gross margin nevertheless improved to 82.6% from 82.0%, while operating cash flow rose 21.0% to A$294.5 million. The cash generation funded A$58.5 million of capital expenditure and supported the company’s practice of returning 100% of NPAT through dividends. The board proposed a 33-cent final dividend, 50% franked, taking the full-year dividend to 86 cents per share.

The performance also had a direct consequence for senior remuneration. FY26 EBIT growth of 14.1% missed the 18.5% minimum hurdle for the chief executive’s short-term incentive and long-term incentive plans. No FY26 CEO STI or LTI vested, and the FY26 executive LTI awards also lapsed after the hurdle was missed. The remuneration report records total FY26 remuneration of A$4.27 million for CEO John Cheston, including fixed pay, benefits and share-based payment accounting, although the performance-based STI outcome was nil.

Impairments, debt and the issues ahead

The balance sheet remains usable rather than pristine. Lovisa ended the year with A$40.3 million of net debt, up from A$34.4 million, against A$120 million of committed term facilities. It also carried A$419.0 million of lease liabilities, a familiar but material feature of a store-heavy model. Inventory fell 12.8% to A$70.7 million, which the company attributed to tighter in-store inventory management and currency translation effects.

Store optimisation was not cost-free. Net impairment expense rose to A$8.9 million from A$858,000, with charges recorded across the Americas, Europe and Asia. The report identifies property, plant and equipment and right-of-use assets as a key audit matter, reflecting the judgement involved in assessing cash flows across a large number of individual stores.

Management has also acknowledged unfinished work in digital execution, systems implementation, operating costs and the refurbishment of older stores. Separately, Lovisa continues to defend a representative class action brought by Australian retail employees alleging underpayments under enterprise agreements. The company says the ultimate impact cannot currently be determined and has recognised no provision.

Lovisa’s next test is therefore not whether it can keep opening stores. It is whether those stores can generate stronger comparable sales while the company upgrades its systems, refreshes older locations and absorbs the costs of global scale. The annual report offers no new earnings guidance, leaving the FY27 trading update to show whether the underlying customer proposition is accelerating or merely being spread across a larger footprint.