Hugo Boss Earnings: Strong Growth All Around Has Management Raising Guidance; Shares Rich

We anticipate an increase to our EUR 56 fair value estimate for narrow-moat Hugo Boss 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.

The spring/summer 2023 collection hit markets during the first quarter, compounding with continuing consumer demand to result in 25% group growth versus the first quarter of 2022 to EUR 968 million. The Americas segment was the standout, growing 38% currency-adjusted, with the United States growing 31% and ahead of peers. Asia-Pacific had the benefit of China, where sales grew 25%, and reached 31% while Europe, the Middle East, and Africa grew at 21%. The three major brands all saw double-digit growth ranging from 23% for Boss Menswear to 31% for Hugo and strong growth in Latin America.

Management updated guidance to approximately 10% growth in revenue to EUR 4 billion, while EBIT is anticipated to reach EUR 370 million-EUR 400 million. The flow-through expectations put net income increasing 10%-20% over the EUR 222 million seen in fiscal 2022. Management reiterated that it expects capital expenditures will reach EUR 200 million-EUR 250 million for the year and that it will be focusing on investing further in its “Claim 5″ strategy and network efficiencies. The shift toward a more 24/7, every-occasion branding mindset so far seems to be providing a strong tailwind, but we still have some reservations, given Hugo Boss’ long-standing presence and brand as formalwear.