Ann: AGM Trading Update November 2023, page-16

Yes, that's the main reason I'm not buying at these prices. If a recession wasn't on the cards, LOV is trading at a cheap multiple. LOV has a lot going it's way though, chiefly geographical diversification and long runway of store growth. Both of these will mitigate the impact of reduced consumer spending.
The macro picture I see is interest rates staying high/rising until economy slows or enters a recession. Then the interest rates will start coming down. That is great for defensive growth stocks e.g CSL as their revenue won't see a drop from a recession but due to lower interest rates the PE ratio they trade at will go up. However with a recession retail sales will take a hit. So, although I am tempted to top up on retail stocks, I think worse is yet to come for them. LOV will very likely be an exception. I think they can maintain bottom line even with a drop in LFL sales due to overall revenue increasing. I'm keen to see how much a 7% decrease in LFL sales impacts the bottom line.

The lowest EBITDA margin in the last 8 years is 25%. This compares to an EBITDA margin of 30% for last year. If we assume a drop to 25% margins for FY24 due to reduced LFL sales, the bottom line takes a hit of around 17% - more or less the growth in store numbers. From there, EBITDA margins should start improving as it's a low base.