Jimmy Choo plc's (LON:CHOO) shares are on the back foot today after HSBC cut its rating on the luxury shoe maker to ‘hold’ from ‘buy’, citing disappointment over its sales and profits.
Shares dropped 1.07% to 161.75p in morning trading.
HSBC said since the initial public offering in October 2014, Jimmy Choo has reported muted like-for-like sales growth and falling underlying margins (EBIT).
Sales growth was 2% in 2016 compared to 7% in 2015 and 12% in 2014, the bank noted.
The EBIT margin was 10.6% last year compared to 12.4% in 2013 despite currency tailwinds of a weaker pound supporting businesses outside the UK.
“Jimmy Choo: we believe the equity story is taking time to unfold: two and a half years after the initial public offering, sales and profitability are not where we believe they should be,” HSBC said, reiterating a 170p target price.
“The disappointment comes from the fact that being of a small size, Jimmy Choo should have significantly out-performed the industry, notably thanks to its potential to open stores.”
The bank said it believes Jimmy Choo has been hurt by competitors increasing their focus on shoes, including Louis Vuitton, Gucci and Dior.
A trend away from high-heel shoes has also affected the brand. “We believe Jimmy Choo was a bit slow to beef up its sneakers offering, thus missed out on the 'athleisure' trend,” HSBC said.
HSBC thinks the group has also underestimated the cost of expanding and revamping its retail stores.
Jimmy Choo reported a 15% increase in fiscal year 2016 sales to £364mln, missing HSBC’s estimate of £373mln, as an improvement in retail in the second half was offset by a decline in US wholesale sales.
For fiscal year 2017, HSBC has forecast an 11.3% increase in sales with retail up 8%, including a 3% rise in ike-for-like retail sales and a contribution from new space of 5%.
In wholesale, HSBC expects 3% organic sales growth. “Our adjusted EBITDA margin forecast calls for 80 basis point improvement to 17% boosted by foreign exchange and improved operating efficiency.”