Lovisa shares continue to slide on CEO exit, analysts mixed
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The news: Shares in jewellery retailer Lovisa continued Monday's slide in morning trade, as a Citi and Morgan Stanley analysts downgraded their ratings on the company following the announcement of CEO Victor Herrero's departure.
The numbers: Lovisa shares tumbled 5.7% to $28.67 by 11:50am AEST, having closed 10.5% lower at $30.40 on Monday.
Morgan Stanley analysts downgraded their rating on Lovisa from 'overweight' to 'equal-weight' and lowered their price target from $32.50 to $30.25. They noted that shares have increased 53% over the last six months and the risk-reward is now "evenly balanced".
However, they upgraded their earnings per share estimates by 2% to 15% over the three financial years to FY26 owing to lower long-term incentive (LTI) payments for the incoming CEO.
Citi analysts also downgraded from 'buy' to 'neutral' and cut their target price from $31.84 to $31.65.
Meanwhile, Wilsons Advisory analysts retained their 'overweight' rating and hiked their target price 13% to $34.20. Morgans analysts also kept their 'add' rating and maintained their target price of $35.
The context: Despite the downgrade, Morgan Stanley analysts said they view Lovisa as a "unique global store roll-out story with a long runway for growth". However, its risk profile has widened around the global roll-out, they said, as that Herrero has more offshore experience than his replacement John Cheston.
Citi analysts were "surprised" at Herrero's departure given previous indications that he was content in the role and wanted to stay. They noted that there should be some stability until he leaves in May 2025, however, they downgraded the stock due to its recent share price run combined with uncertainty following the management change.
Wilsons Advisory analysts lowered their forecasts for Lovisa's China roll-out, given Herrero's reputation as a "well-connected global retailer". They maintained their 'overweight' rating though, pointing to earnings upgrades through Cheston's lower LTI payments and their view that Lovisa has "one of the most profitable and scalable physical retail formats globally".
Morgans Analysts also kept their rating unchanged, noting that Lovisa has "ambitious expansion plans, which we believe are undiminished by the recent change in CEO".
"Ongoing investment will be needed to expand [Lovisa's] multinational network and to take it into new markets, including China, but the company has the capacity to fund this, and the returns could be stellar," they said.
The sources: Citi research, Morgan Stanley research, Wilsons Advisory research, Morgans research
