Hi David,
A well timed question with LOV indeed testing below $29 this week, ~25% below its 2024 high. The stocks experienced two specific waves of selling:
- In August their FY24 result disappointed with revenue and earnings below expectations.
- In the last two weeks the stock has taken another leg downwards following the news that a new competitor founded by former chief executive, Shane Fallscheer plans to roll out his new accessories stores “Harli + Harpa” by Christmas.
Over recent years the issue with LOV has often been weighing up its valuation and further growth prospects, i.e. its Est. P/E for 2025 is 31x compared to say JB Hi-Fi (JBH) at less than 20x. The high valuation has been underpinned by superior growth, largely due to their ability to roll out large volumes of new stores, however, with a new CEO, their ability to execute at the same run rate has come into question at a time when like for like sales from existing stores have slowed mildly.
The question now being asked is what impact this new competitor will have on LOV plus the end of Taylor Swifts Era tour is being touted by many as likely reduce sales of jewelry to LOV’s classic target market.
Mr Fallscheer has deep retail connections and fishing in LOV’s pond, where they enjoy pre-tax profit margins of over 80%, maybe akin to shooting fish in a barrel.
- We like the risk/reward ~$28 and it feels like now or a never moment after the stock’s sharp correction. However, we believe the reasons behind recent weakness are real and if we do consider the stock into Christmas, it will be in a more conservative manner due to the increased risks. Max position size on LOV would be 3%.