The retailer tumbled more than 10% on Monday after announcing CEO Victor Herrero will leave the company, though not before another 12 months in the role. Current Smiggle boss John Cheston will take on the role in June next year, his departure coming at an interesting time given Smiggle’s owner Premier Investments (PMV) revealed plans to demerge the business by January. John will also receive a slight pay bump compared to Victor’s base for the next 12 months, while John will be well incentivised to drive EBIT growth built into short-term incentives.
There was no trading update alongside the CEO announcement which suggests consensus expectations for FY24 are broadly in line with how the company is tracking now 11 months through the year. The market expects EBIT of $130m for FY24 when the retailer announces results in August, ~23% growth on FY23. Cheston will have a tough task at hand when he joins, with Lovisa currently trading on ~39x PE for FY24, plenty of growth is built into the price.
Lovisa has been on an aggressive store growth path over the last few years, opening 172 sites in FY23 and 53 in the first half of FY24. Much of the expectations around earnings growth rely on this pace at least maintaining, if not accelerating. A new CEO in the seat increases the execution risk around this plan. The macro backdrop is also cause for concern. While Lovisa has so far avoided any significant impact from a consumer slowdown, it’s hard to see this lasting forever.
- Lovisa is a quality retailer and the hire of John Cheston brings in the right experience to replace the well-liked Victor Herrero, it is still expensive and there are near-term risks we aren’t keen on adding exposure to.
MM is neutral LOV at this stage
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