Company Reports

We are maintaining our fair value estimate for Hugo Boss at EUR 62 as the company reported solid, but moderating sales and profit growth in the first quarter. Revenue was up 6% on a currency-adjusted base, a sequential deceleration from 13% in fourth-quarter 2023, but in line with the company’s guidance for the full year (3%-6% range). The comparison base was quite challenging from last year when growth in the quarter was 25%.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (69% of brick-and-mortar sales), should allow the company to generate average returns of 11%-12%, above our 9% cost of capital estimate over the mid- to long term.

We expect to reconsider our fair value estimate of EUR 68 for narrow-moat Hugo Boss in the future as the company forecast sales and operating profit for 2024 below our estimates and company-compiled consensus. The company expects to earn EBIT between EUR 430 million and EUR 475 million, up from the EUR 410 million reported for 2023, but falling short of EUR 490 million expected by consensus and our estimates. Sales are expected to rise by 3%-6%, reaching around EUR 4.30 billion-EUR 4.45 billion, lower than our 7% forecast and consensus of around 9%, marking a significant slowdown from 15% growth in 2023. Hugo Boss may postpone its goal of reaching EUR 5 billion in revenue by 2025 due to consumer worries about inflation and higher borrowing costs hitting discretionary spending. Nonetheless, it anticipates achieving a minimum EBIT margin of 12% by then. The company's shares suffered a significant 17% decline at the time of writing.

We maintain our fair value estimate of EUR 68 for narrow-moat Hugo Boss as the company reported preliminary results for 2023 in line with our estimates and the company’s prior guidance. Revenue was up 18% for the full year at constant exchange rates and 15% at current exchange rates (15.4% in our models) and EBIT increased by 22%, reaching a margin of 9.8% (9.2% in 2022 and we expected 9.7%). EBIT growth was at the midpoint of guidance (20%-25%), but the market found it disappointing. Hugo Boss' revenue growth, above that of the luxury sector, comes at a cost. Nonetheless, we view the Jan. 16 sharp share price drop, on the back of very decent results, as an opportunity for investors even as we expect top-line momentum to decelerate and a maintainable operating margin of 11%, below management’s target of “at least 12%.”

We are increasing our fair value estimate for Hugo Boss to EUR 68 from EUR 66 per share to factor in continued solid performance (toward the top end of our luxury coverage), helped by strong brand momentum. We now expect this momentum to also support sales growth in 2024, driving high-single-digit top-line growth. Thereafter, we expect deceleration to a low-single-digit growth rate to factor in generally slower growth of the apparel industry versus the "other" luxury goods category, competitiveness of the category, and Hugo Boss’ higher exposure to slower-growing developed markets. We see shares as attractive, trading in 4-star territory.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We are increasing our fair value estimate for narrow-moat Hugo Boss to EUR 66 per share on expectations for stronger growth and margin progression in 2023 as the company reported a strong second quarter and raised full-year guidance. At current levels shares look fairly valued as we don’t expect double-digit revenue growth to persist over the long term, given slower growth and competitiveness in the premium apparel niche where Hugo Boss operates. Nonetheless, we are impressed by the current strong brand momentum across geographies with 15% currency-adjusted growth in Europe, Middle East, and Africa, 41% in the Asia-Pacific region, and most surprisingly 20% growth in the Americas (16% growth in the U.S.), the region that has been very challenging for most luxury stocks under our coverage this year.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We anticipate an increase to our EUR 56 fair value estimate for narrow-moat Hugo Boss following model updates to include first-quarter results as well as raised management guidance. In the first quarter, Hugo Boss saw strong growth companywide, and EBIT margin expanded roughly 30% year over year as selling and marketing expenses as a percentage of revenue decreased on the back of brick-and-mortar retail efficiency. We currently view the shares as overvalued.

We are currently maintaining our fair value estimate of EUR 56 for narrow-moat Hugo Boss as we update our model to reflect full fiscal 2022 earnings. EBIT came in at the median consensus estimate of EUR 335 million, beating our expectations of approximately EUR 310 million despite total marketing expenses growing over 40% to just under 8% of sales. This remained in line with management's CLAIM 5 plan previously disclosed. We currently view shares as overvalued.

We are maintaining our fair value estimate for narrow-moat Hugo Boss as the company delivered solid third-quarter results and increased its full-year outlook. Shares are looking attractive after a pullback, trading in 4-star territory. For the full year the company now guides for revenue growth of 25%- 30% and for EBIT to grow 35%-45% (24% and 36% respectively in our models). Prior management guidance was for 20%-25% growth in revenue and 25%-30% growth in EBIT.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We increase our fair value estimate for narrow-moat Hugo Boss to EUR 56 per share from EUR 50 to reflect stronger revenue and profit developments in 2022, supported by stronger-than-expected brand momentum.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We retain our fair value estimate for narrow-moat Hugo Boss following a strong first-quarter 2022 that benefited from an easy comparison base versus 2021, when it was still heavily hit by lockdowns and store closures in Europe, as well as revived brand momentum following a style refresh and boost in marketing spending. We view shares as fairly valued at current levels.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.

We expect to increase our fair value estimate for narrow-moat Hugo Boss by a mid-single-digit percentage to factor in better-than-expected profitability development post-COVID-19. We view the shares as fairly valued at the moment.

We are not making any changes to our fair value estimates for our luxury and apparel coverage list due to Russia-Ukraine armed conflict. The luxury industry’s exposure to the Russia and Ukraine is small, accounting for a low-single-digit percentage of revenue, by our estimates. We believe that the conflict is unlikely to dampen consumer confidence in China (primary long-term growth driver) or the U.S. (driver of growth in recent years). European consumer sentiment (low-20% of industry’s sales) may be affected, should energy-related inflation accelerate meaningfully as a result of conflict; however, Morningstar's view is that the likelihood of gas delivery disruption to Europe from Russia is low. That said, most luxury names in our coverage look expensive to us, and we would recommend investors await a wider margin of error for investment in the sector.

We think Hugo Boss’ strong positioning, with almost 10% market share and high brand awareness in the premium menswear category, as well as relatively high share of distribution control (65% of sales), should allow the company to generate average returns of 10%, above our 9% cost of capital estimate over the mid- to long term.