Analysts at global investment bank UBS are less bullish about Lovisa in recent weeks, with investors having similar thoughts, leading to a 15 per cent drop in the affordable jeweller’s share price in the first full week of 2025.
Lovisa's share price currently sits at $26.02 at the time of publishing, down from the latest peak of $30.79 on January 7 this year, and a top peak of $36.19 in mid-October, 2024.
In a note to investors, UBS analysts wrote that Lovisa (ASX:LOV) has significant store growth potential, assisted by a consistent format across markets and an attractive ticket price for Gen Z consumers.
However, the rate of net new store growth has been modest in recent years, with analysts claiming the expectations for the first half of FY25 and beyond are “too aggressive”.
According to UBS, Lovisa opened 27 new stores in the first half of FY25, down from a market expectation of 39. This is below the FY24 timeline of 98 stores, “as operational issues and we assume unattractive rental economics reduced the pace from the very strong FY23 (173), which is increasingly looking like an aberration,” analysts wrote.
“Our less bullish approach to net new store growth, with UBSe below mkt in future years, reduces the key support of LOV revenue growth.”
UBS analysts added that like-for-like sales growth has been subdued despite undemanding comps.
In a November 2024 update, Lovisa reported that its global comparable store sales for the first 20 weeks of FY25 were up 1 per cent on FY24 for the year to date, with total sales for this period up 10 per cent on FY24. This is a slight improvement on FY24 results, when comparable store sales were down 2 per cent, improving in the second half of that financial year.
Competition is also an increasing risk for Lovisa, with the recent launch of similar jewellery business Harli + Harpa as a direct competitor in the Australian market, founded by former Lovisa CEO Shane Fallscheer. The brand was launched to market late last year, with around 20 stores opened by year-end.
However, a recent news report by The Australian indicates that Fallscheer’s new business venture is being taken to court by Cass Fuller, Harli + Harpa’s inaugural CEO, over allegations of lost wages and entitlements following her reported dismissal two months into her role.
Fuller is still listed as the current CEO of Harli + Harpa on her LinkedIn profile.
As for Lovisa, UBS analysts have reduced their earnings estimates for the global jewellery brand “to reflect a less bullish approach” to net new store growth and lower like-for-like sales growth, which also reduces the bank’s evaluation.
“Given the downside risk to consensus earnings estimates and reduced valuation support, the risk reward is no longer compelling,” analysts wrote.
In FY24, Lovisa scored a net profit after tax (NPAT) of $82.4 million, up 20 per cent on the previous year. The company is yet to disclose earnings through FY25.