Lovisa’s AGM trading update revealed weakening sales trends and a slower pace of net new store openings. We expect to see a year of slower store openings, influenced by the CEO transition period being so drawn out. Increasing competition and promotional activity weighs on margins.

Super Retail Group’s trading update for the first 16 weeks highlights a slight softening of sales trends and some increased pressure on gross profit margins. The increased competition in the auto market is of note given Supercheap Auto accounts for over half the group’s earnings and close to two-thirds of valuation. Repco is becoming more competitive in retail and Bunnings will expand in auto in the next six months. 

Lovisa has enjoyed a relatively low level of competition. The company has a moat related to the breadth of its frequently refreshed and low-price product offering. How defensive is that moat?  A new entrant in Harli + Harpa, led by ex Lovisa CEO, Shane Fallscheer will launch shortly. Lovisa has derisked its Australian exposure, but its domestic market remains a key funding source for its global expansion aspirations. There are early signs of weakness in Australia and increasing competition will put downward pressure on the highly attractive margins. The global expansion is the key driver of growth for Lovisa but the domestic market still matters.