Retail has been in the doghouse as the sector faces the onslaught from online competitors and the weak wages growth environment.
But not all brick-and-mortar retailers are on the defensive even as some of the best names in the industry such as JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR) are sliding backwards from structural changes to the industry.
Sure, there have been a handful of consumer-facing stocks that are bucking the trend such as Woolworths Group Ltd (ASX: WOW) and Premier Investments Limited (ASX: PMV), but if you want to buy growth, it's hard to look past Lovisa Holdings Ltd (ASX: LOV).
The stock is surging 3.7% in afternoon trade to touch a record high of $11.06 compared to a 0.3% gain by the All Ordinaries (Index:^AORD) (ASX:XAO) index and Citigroup thinks there is more left in the tank as the broker initiated coverage on the costume jewellery retailer with a "buy" recommendation.
"Lovisa is in the early stage of its international expansion and we see material earnings upside over the medium term from the current pilots," said the broker.
"Our investigation into France, Spain and USA indicates these markets could represent a $280 million revenue and ~$64 million EBIT [earnings before interest and tax] opportunity (~1.6x Lovisa's FY17 EBIT). Should Lovisa successfully rollout 418 stores across the three pilot markets, we see the company worth $16.12 per share."
But Citigroup prefers to play it "conservative" and is only factoring in a 209-store rollout across the three markets. This equates to a price target of $12.30 a share on top of the broker's 23 cents a share dividend forecast for FY18.
Lovisa is more advanced in its entry into the United Kingdom, which is a bigger near-term driver of group profit, although it is still early days yet with management opening 25 stores out of the 100 targeted stores.
Citigroup is already calling Lovisa's international expansion a success by describing the retailer as being "on the path to world domination" with China, Mexico and Canada representing other markets that the company could expand into.
How many ASX-retailers have you heard being described in the same way? None I can think of.
But the stock is not without risks. Mall foot traffic is falling, and given that cheap jewellery is often an impulse buy, this could adversely affect Lovisa's sales.
Fleeting and fickle consumer taste in costume jewellery pose another risk, while investors are likely to remember the sudden departure of the company's chief executive last month.
Nonetheless, Lovisa probably has the best organic growth opportunities in the sector although Noni B Limited's (ASX: NBL) acquisition of a number of Specialty Fashion Group Ltd.'s (ASX: SFH) brands shows there is more than one way to grow in this challenging environment.
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