Why are Lovisa shares sinking 10% on a green day?

The exit of a highly regarded CEO is weighing on the retailer's shares.

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The market may be pushing higher today, but the same cannot be said for Lovisa Holdings Ltd (ASX: LOV) shares.

At the time of writing, the fashion jewellery retailer's shares are down a sizeable 10% to $30.58.

Why are Lovisa shares sinking?

Investors have been heading to the exits today after the company announced that its CEO, Victor Herrero, will be stepping down from the role next year.

According to the release, Herrero has agreed to an amended employment contract through to 31 May 2025.

After which, the highly regarded CEO will be replaced by John Cheston, who will join the company on 4 June 2025.

Why the reaction?

While CEO exits often receive poor reactions from investors, Lovisa shares are falling particularly heavily today. This is because the appointment of Victor Herrero was a real coup for the company and a key reason why many invested (myself included) in the company.

The outgoing CEO has been instrumental in Lovisa's global expansion. And while a lot of the hard work has certainly been done since his arrival in 2021, there's still a lot more to come. The market may be concerned that his exit now puts at risk the successful execution of this expansion.

Herrero joined Lovisa having spent 13 years with the Inditex Group, which is one of the world's largest fashion retailers (Zara, Pull & Bear and Massimo Dutti). During his time at Inditex, he held numerous roles including Head of Asia Pacific and Managing Director Greater China and led the company's expansion through this region rolling out 800 stores across multiple countries including China and India.

After which, Herrero spent four years as CEO of Guess, and was then the chairman and CEO of international shoe manufacturer and retailer Clarks.

The good news is that Lovisa's chair, Brett Blundy, remains positive on the future and was pleased with the appointment of John Cheston. He said:

The Board and I are pleased to announce that Victor has entered an amended 12-month contract. The Board and I are also pleased to announce that John Cheston will join us as CEO and Managing Director on the 4th of June 2025. John is a highly successful Global retailer and will join Lovisa at a very exciting time as we continue our global growth.

Cheston is currently the CEO of Smiggle, which is owned by Premier Investments Limited (ASX: PMV). Its shares are down on the news of his departure from the role.

Given that Smiggle has also been successfully expanding internationally in recent years, Cheston appears to be a worthy CEO of Lovisa and should be able to pick up where Herrero leaves off.

Motley Fool contributor James Mickleboro has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa and Premier Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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