@Rick - yes, it is a slightly convoluted story, and I'll capture the main elements. It was a slightly unusual exit for me, because the thesis is by no means broken, and I would hold again in future.
There were two elements to the decision: 1) company-specific and 2) my portfolio management.
1) Company-specific
- I entered $LOV only as recently as June-23, at $18.61 in RL
- My latest view on valuation was $30 ($23-$37), however the scenarios north of $30 required a strong store build out
- In June I estimated the number of stores to be around 900, not in line with my high value scenarios (I did a deep data trawl of their store list from their website. It turned out to be amazingly accurate, because they only recently announced their 900th store opening!)
- My analysis indicated that 1) they haven't started rolling out in China and 2) they've opened very few new stores in the USA. Both markets are key to my higher growth scenarios
- Then, Victor announced that's he's leaving next year, and I was underwhelmed by his replacement. Victor's experience at rolling out Zara in China supported my conviction that $LOV would advance and be successful in China. Its not a market for the uninitiated. Perhaps he was unable to roll forward his eye-watering remuneration package, but maybe he has also have been in the seat a couple of years and his own conviction has waned. He makes a motza only if he knocks the global rollout out of the park. Has he lost faith in the upside?
- Consumer discretionary is still on the nose globally, even though $LOV benefits from the "lipstick effect". Still, I also cant see LFL knocking it out of the park.
In summary, when I consider the multiple $LOV is trading on, there is a chance that if it underperforms (or if it doesn't "beat"), the SP could get hit pretty hard. Too many "talking heads" are promoting it once more, and the contrarian in my always hates that.
Given all these factors and what I have to believe to get numbers justifying >$34, I felt that I had to put $LOV on the block, and consider if I could deploy the capital better elsewhere.
2) Portfolio Considerations
My conviction holdings in retail exposure are $NCK and $BRG. I am prepared to have only a limited proportion of my portfolio in discretionary retail, and $NCK was where I wanted to add, as my RL position was too small.
I have been prepared to let go quality holdings where I see limited potential for upside over a 1-2 year horizon based on valuation ($LOV, $WTC, and $RMD). At the right price, I would consider adding these back, as the thesis for each is intact.
I also want to increase my portfolio exposure to some higher risk / more speculative ideas ($BOT-high conviction; $BIO-starter pack) to replace some of my failed ideas ($RFT) and ideas where I have lost conviction that they will ever become giants ($ALC, $AVA, $DSE - all recently exited).
Price weakness on $AD8 was an opportunity to re-enter this one - having sold it last year at $17 was a mistake (although I convinced myself at the time it was the right decision).
I've also been RL accumulating $CAT, as it breaks through the inflection point and is a global category leader with a CEO who is hitting the straps.
Conclusion
In offloading $LOV, I pocketed a very nice 10 month return, it stays firmly on my watchlist and I'll be watching what happens post the FY-result. But it also freed up some capital for me to add to high conviction ideas ($BOT, $NCK)
Apologies for the long-winded answer, but the "sell" on $LOV was a little more complicated than making the decision on its own merits. (You can also look at my post "Divestment Decision", where I gave a less fullsome explanation.)