Hugo Boss [ETR:BOSS] is very much on trend right now with soaring sales figures, enviable new collections and terrific momentum. The fashion giant is also forecast to benefit from the wave of wealthy international tourists set to hit European shores this summer.
The Hugo Boss share price has rallied recently, but the stock is still well off the more bullish EUR 65 levels we saw back in early March. Investors are going to be wondering whether management can pull this fashion retailer out of its slump.
Hugo Boss provided earnings guidance for the fiscal year 2022 on 9 March, saying that it expected sales to increase at a mid single digit percentage rate to an amount between EUR 3.8bn and EUR 3.9bn. The company has been registering incremental gains in its core metrics, with a 4% change in total assets and a 3% change in liabilities. Price to book value has picked up markedly however, which is cause for some optimism.
Hugo Boss: brand heat is cooling off
“However stretched supply lines and elevated inflation mean their margins remain under pressure and will remain so until at least the fall of 2023,” observed Zainab Atiyyah, an analyst with Third Bridge. “This means promotions are likely to continue into the spring to clear excess inventory. Hugo Boss’s brand heat is also cooling so additional marketing and brand expenditure is probably on the way.”
The German fashion giant then has two strategic obstacles to negotiate. The speed at which they should expand their retail presence away from wholesale and the best way to shift back from sportswear and casualwear towards formal wear and leather goods.
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Q4 results have looked unimpressive however. The five and 50 day moving averages point at a level of fence sitting by investors over the short to medium term. While Hugo Boss stock looks more positive on the 200 day picture, this is not indicative of the level of negativity we are seeing among Hugo Boss’ investors at the moment. The big worry seems to be the ongoing inflation picture and how consumers will react to higher inflation when it comes to luxury goods purchases. In addition, changes to sales strategy also seem to be encouraging this wait and see approach.
Holding its own among European fashion stocks
Generally speaking Hugo Boss is holding its own against the sector and close peers in the German market like Puma and Adidas. The one to watch for shareholders is the cash flow metric which jumps out at us as inferior to what you’d like to see in a fashion / apparel play of this scale.
Bridgewise currently rates Hugo Boss a hold. The company sports a good balance sheet, but it is the cash flow it has reported recently which is letting it down. It appears likely to maintain its strong balance sheet metrics and momentum going forward. The price to book ratio also looks attractive versus its peers. Investors will likely want to sit this quarter out and revisit the numbers the company puts out at its next filing to see if there has been any change.
