Hugo Boss Plunges to Nine-Year Low as Turnaround Unravels

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(Bloomberg) -- Hugo Boss AG plunged to a nine-year low after the German suitmaker cut its full-year outlook on weakness in the U.S. and Hong Kong, casting doubt on Chief Executive Officer Mark Langer’s turnaround efforts.

The guidance reduction comes two months after the suitmaker previously lowered its outlook, citing weak sales to tourists and pricing pressure in the U.S. Now the anti-Beijing protests in Hong Kong, which led to a plunge in visits by mainland Chinese luxury shoppers, are creating a new headache. The stock fell as much as 13% Friday morning.

The company’s turnaround efforts have gone awry since it replaced its chief executive officer with then-chief financial officer Langer in 2016, as suitmakers struggle to adjust to the trend toward casual office attire. Hugo Boss set out a plan last year to shift toward a faster-fashion model, speeding up production, personalizing its clothes more and boosting e-commerce.

“We see no end to this pressure,” wrote Piral Dadhania, an analyst at RBC Europe, slashing his price target by more than a quarter to 50 euros. “Hugo Boss is clearly not immune.”

The announcement weighed on other apparel makers, with Burberry Group Plc shares diving as much as 4.1%. Ted Baker Plc fell as much as 3.6%.

Hugo Boss had expected sales to grow faster in Asia, which has been driving the fashion industry’s sales. Luxury conglomerate LVMH said Thursday that sales in Hong Kong fell 40% in August and September.

What Bloomberg Intelligence Says:

“Hugo Boss’s profit warning still leaves it with a challenge in 4Q to meet new expectations of a 3% fall in 2019 reported Ebit, we believe, given underlying reasons behind the warning are still in place.”

-- Charles Allen, BI consumer retail analyst

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The fashion house said it expects currency-adjusted sales to increase by a low single-digit percentage this year, down from previous guidance for an increase at the lower end of a mid-single-digit range. Sales in the third quarter were flat from a year earlier.

The suitmaker also now expects a decline in operating profit to a range of 330 million euros and 340 million euros ($364 million to $375 million). It previously forecast an increase from last year’s 347 million euros.

©2019 Bloomberg L.P.

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