Hugo Boss shares fall on double downgrade from Bank of America

By Louis Goss

Luxury fashion brand faces concerns about ongoing slowdown in the luxury sector

Hugo Boss shares fell on Monday after the suit seller suffered a double downgrade on concerns about the slowdown currently hitting the luxury fashion industry.

Bank of America analysts downgraded the Metzingen, Germany-headquartered clothes seller from a buy to an underperform rating over fears its profits will be hit by the slump.

The fashion company took the sharpest blow as the analysts also downgraded its luxury rivals LVMH Moet Hennessy Louis Vuitton (FR:MC), Kering (FR:KER) and Ermenegildo Zegna (ZGN) to neutral ratings.

Hugo Boss shares (XE:BOSS), which are listed on the Frankfurt Stock Exchange, fell 2% on Monday, having lost 44% of their value in the year to date on a series of underwhelming financial results.

The Bank of America analysts said they now expect that the fashion industry will achieve -1% revenue growth in the second half of 2024 and 3% revenue growth in 2025.

"The luxury consumer is all shopped out. Muted sector revenue growth will now likely continue into [the second half of 2024] and 2025," the analysts said.

They explained that Chinese demand is now slowing down from a peak in 2022 and early 2023, when consumption boomed in the aftermath of the COVID-19 pandemic.

"The American consumer was the first to normalise, followed by the Korean, European and Japanese consumer," the analysts said.

A slowdown in Chinese demand will now see the removal of the last source of consumption that is currently propping up sales growth in the fashion industry, the analysts said.

Hugo Boss is particularly vulnerable to any slowdown, as demand for formalwear is closely correlated with gross domestic product growth, the analysts said. Increased competition from rivals could also hit Hugo Boss's sales.

The analysts said the increasing strength of the euro and any increase in the cost of raw materials could also work to erode Hugo Boss's profits.

In July, Hugo Boss cut its guidance for full-year 2024 on concerns that a slump in the global economy would hit its sales in key markets, including the U.K. and China, throughout the remainder of the year.

More broadly, the Bank of America analysts also noted that fashion companies in recent years have sought to boost their sales by increasing their prices instead of driving volume growth by creating new products.

"Loud brands" dominated the fashion industry from August 2016 to early 2019, before the sector made a noticeable switch toward "quiet luxury," driven by TV shows like "Succession."

The analysts said they now expect to see a move away from quiet luxury toward a recovery for loud brands focused on selling higher volumes of more accessible products.

More understated brands generally rely on price hikes to boost their revenue, while loud brands focus on newness to increase their sales volumes, the analysts said.

-Louis Goss

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09-23-24 0931ET

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