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Mark's Value Insider #10

Is Lovisa a diamond in the rough?

Continuing on our recent theme of attractive ASX companies, Lovisa ticks several of Value3’s investment criteria. 

It's also a company that’s likely to be on just about any ASX growth investors’ radar. 

With a new highly experienced CEO set to take the helm this week, is it time to add Lovisa to your portfolio? Let's find out.

A rapidly growing ASX retailer

Lovisa is a vertically integrated fast fashion jewellery retailer. It was founded by billionaire Brett Blundy in 2010, who remains the current Chairman and owns around 40% of the business. 

Lovisa prides itself on being able to identify fashion trends early and have related products in store within 6-8 weeks.

Over the past 5 years, the retailer has rapidly expanded, now operating more than 900 stores across 49 countries.

Recently, the business has become significantly more geographically diversified. Prior to Covid-19, approximately half of Lovisa’s revenue came from its local Australian and New Zealand markets. However, now local markets make up around a quarter. 

Historically, the business model has proven resilient through various economic climates. It is not reliant on a specific fashion trend or particularly sensitive to economic conditions.  

Lovisa also primarily caters to women aged 15-30, who are less likely to have significant debt or be affected by higher living costs. This gives the company a clear advantage over other ASX retailers.

Coming This week: A changing of guard

This week, a new CEO is set to take the helm at Lovisa. 

John Cheston will replace Victor Herrero.
 
Herrero has been with the company since 2021. He has been instrumental to Lovisa’s success, with the number of Lovisa stores almost tripling from 350 to above 900 under his leadership. 

Can Cheston take the business to new heights? He certainly has the experience, having served as CEO of stationery retailer Smiggle for 12 years. However, given the terms of his departure, corporate governance concerns may loom. 

Shortly after announcing he would be leaving Smiggle to join Lovisa, Cheston was terminated from Smiggle. Although no official details have been provided, the Australian Financial Review reported that his abrupt dismissal was a result of “interfering in a HR investigation”.

Cheston continues to deny any wrongdoing. Chairman Brett Blundy also remains confident in Cheston’s wealth of retail experience and track record. 

Late last year Blundy touted Cheston’s experience, reiterating his expectation for the incoming CEO to take Lovisa to new heights

“Get ready for a new era of operational excellence, growth, innovation, and excitement under his leadership,” Blundy said.

Smiggle is owned by Solomon Lew’s Premier Investments.

Is it possible that his former boss was displeased with his departure, and looked for an excuse to terminate his employment early. Or is there more to it?

Do you think shareholders have reason to be concerned about John Cheston joining Lovisa?

Or, do you think he’s a good fit for the business?

Let us know. 

It is also worth noting that his predecessor Victor Herrero wasn’t without his own controversies. As one of the highest paid CEOs on the ASX, he attracted his fair share of shareholder criticism. In 2022, his pay package reached $21 million, making him the second-highest paid ASX CEO, only behind Macquarie Group’s Shemara Wikramanayake. In 2023, Herrero took home an eye watering $29 million in base pay and share based compensation.

Despite this, Lovisa has been a very lucrative investment for shareholders, returning more than 250% over the past 5 years plus dividends.

Is Lovisa a buy according to Value3?

Given that Lovisa shares are up more than 30% since the April low, you may be asking whether Lovisa is still good value.

It’s true that Lovisa has been one of the best post ‘Liberation Day’ dip recovery stories, only eclipsed by a select group of companies, including the likes of Pro Medicus which has rebounded nearly 60%.

However, Lovisa continues to face tariff headwinds. Lovisa's products are primarily sourced from China, making it vulnerable to any tariffs on goods originating from that country. 

On ‘Liberation Day’ US President Donald Trump set China’s tariffs at 54%, slapping an extra 34% tariff onto the existing 20% levy. Since then, the US and China have engaged in a trade war. However, on 12 May, the two nations agreed to a 90 day pause in the spirit of negotiation. The final outcome remains to be seen.

There's no doubt tariffs will impact Lovisa's profitability. But how? In the video below, our Financial Specialist Bruce Carmichael uses the V3-Val Scenario Analysis tool to explore how Lovisa’s business could be impacted by tariffs.

Given Lovisa’s track record, outlook and current share price, Bruce also uses V3-Val to assess whether Lovisa is still good value at a share price of $27.88.


As Bruce reiterates, Lovisa has a lot going for it. However, after its recent run Lovisa share price is less compelling. Nevertheless, it is one of the highest quality retailers on the ASX, and certainly deserves a spot on your watchlist in the event that the share price retreats.

And be warned: every company will claim they’re “taking it seriously.” Don’t take their word for it—play detective. Your portfolio will thank you.

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Disclosure: General advice only. Past performance ≠ future results.