Why this rapidly growing ASX retail share is storming 8% higher today

The Lovisa Holdings Ltd (ASX:LOV) share price is storming higher on Wednesday after delivering strong profit growth in a difficult retail market…

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The Lovisa Holdings Ltd (ASX: LOV) share price has been amongst the best performers on the All Ordinaries on Wednesday.

The jewellery retailer's shares are up 8% to $11.85 at the time of writing.

Why is the Lovisa share price racing higher?

Investors have been fighting to get hold of Lovisa's shares after the release of its half year results.

During the first half the company reported a 22.2% increase in revenue to $162.8 million and a 19.1% lift in gross profit to $128.5 million.

This was driven by a 2.1% lift in comparable store sales and the opening of 49 net new stores during the period. 21 of these new stores were opened in the massive U.S. market across multiple states. This has lifted its store count to 40 in the United States and 439 stores globally.

On the bottom line the company reported a 9.1% increase in net profit after tax to $27.8 million and a 2.1 cents lift in earnings per share to 26.3 cents.

Lovisa's cash conversion was strong during the half. It came in at 98%, with operating cash flow of $46 million. Despite this, the Lovisa board opted to cut its fully franked interim dividend down by 3 cents to 15 cents per share.

The company's managing director, Shane Fallscheer, was pleased with the half and particularly its store rollout momentum.

He said: "We are pleased with the momentum of the store rollout during the period which has again delivered us strong top line sales growth, and despite the investment required to deliver this growth we have also managed to deliver solid growth in profit."

Trading update.

Management advised that trading for the month of January was in line with its first half comparable store sales growth of 2.1%.

However, it notes that there has been an impact on store traffic due to the coronavirus outbreak. As a result, it has seen a slowing of its trading performance, particularly in the Singapore and Malaysian markets. As a result, second half comparable store sales are now at -0.7% and YTD at +1.7%.

It also warned that disruptions to its supply chain in China could impact its sales in the coming months. It is working with its suppliers to limit disruption and maintain its stock levels. But at this stage it is too early to estimate accurately what impact the coronavirus will have on its second half performance.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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