The Lovisa Holdings Ltd (ASX: LOV) share price tumbled on Friday along with its peers, but the costume jewellery retailer may continue to lag ahead of its profit results in August.
This is the prediction from Morgan Stanley who’s warning that there is a 70% to 80% chance the Lovisa share price will fall over the next 60 days.
The bearish prediction stands in contrast to the recent re-rating of ASX retail stocks as Australia emerges from the COVID-19 shutdown.
The sector also got a boost on news that the economic fallout from the coronavirus pandemic isn’t half as bad as what experts were predicting.
But Lovisa may be among the worst placed retailers to benefit from these tailwinds. Morgan Stanley sees near-term risk to its share price as its store rollout in the US, UK and France may take six to 12 months to ramp up again.
This is significant as new store openings in those key markets are a major earnings driver for the group.
But these countries are having more trouble than Australia in flattening the coronavirus curve. The US may be particularly hard hit on fears of a second wave of infections as the number of Americans catching the virus surpassed two million.
All glammed up and nowhere to go
This may not be the only thing to weigh on Lovisa’s share price. Morgan Stanley doesn’t think the small cap retailer will benefit so much from the rebound in consumer spending in Australia.
The reason is social events like weddings are a big driver for jewellery demand and there are still strict limits on the number of people who can attend such gatherings.
Disconnected from online sales
Finally, Lovisa may not benefit significantly from the big shift to online shopping because the company doesn’t have a strong presence in this channel, explained Morgan Stanley.
If the broker is right, the company’s full year result announcement in August may be a sombre affair!
Morgan Stanley’s recommendation on Lovisa is “equal weight” (equivalent to a “hold”) and its price target on the stock is $6.50 a share.
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