Hugo Boss downgraded: Stifel warns of slowing profit and sales momentum

Investing.com - Stifel has downgraded the shares of Hugo Boss (OTC:BOSSY) (ETR:BOSSn) from "Buy" to "Hold" in a note released on Monday, citing concerns about declining sales and profit momentum. Additionally, the investment house lowered the price target for the German clothing company from €56.00 to €40.00, reflecting significantly reduced sales and earnings forecasts per share for 2024 and 2025.

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The decision to downgrade Hugo Boss comes against the backdrop of challenging market conditions in key regions like the UK and China, as well as a normalization of growth in the US. Stifel analysts stated that the company "is facing weaker demand in key markets such as the UK and China, a normalization of growth in the US, risks of a slowdown in the wholesale business, and an advertising environment since Q423."

For 2024, Stifel has revised its sales forecast down by 1.1% and its EPS forecast down by 14.6%.

The forecast for 2025 is even more pronounced, with a sales decline of 4.4% and an EPS decline of 19.9%. The new price target of €40.00 represents an upside potential of around 12% compared to the current price of €35.63.

Stifel's report states that the company will face significant margin pressure in the near future due to operational deleveraging. "We fear that the first profit warning under CEO Daniel Grieder will not be the last if trading conditions in key markets do not improve heading into 2025," the analysts added.

Despite these challenges, Stifel sees potential for margin improvements in the long term. Overall, the analysts remain cautious, stating, "A premature recommendation for the stock is equivalent to a wrong decision. The stock looks very cheap, but there is a lack of catalysts for a revaluation, as things could get worse before they get better."

The downgrade marks a significant shift in Stifel's stance, as it had previously been optimistic about Hugo Boss's performance following a successful campaign to revitalize the brand in 2021-2023. The company had gained significant market share during that period, but the momentum now seems to be slowing.

Hugo Boss is expected to announce its results for the second quarter of 2024 on August 1, 2024.

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