Hugo Boss’ Sales Rise Above Pre-COVID-19 Levels With Over 30% Growth in Fiscal 2022; Shares Rich

We are currently maintaining our fair value estimate of EUR 56 for narrow-moat Hugo Boss 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.

Fiscal 2022 sales finally surpassed pre-COVID-19 levels, increasing by 31% to over EUR 3.65 billion, while managing to maintain Hugo Boss’ gross margin. This, combined with operating expenses growing only 29%, allowed for operating margin expansion from 8.2% in fiscal 2021 to 9.2% in 2022. Supply chains normalized more during the year, and we do not anticipate that the buildup of inventory will weigh heavily on cash flows. Despite restrictions in China, Hugo Boss saw sales growth in the double digits across all regions ranging from 10.5% in Asia Pacific to over 45% in the Americas. The segment profits growth showed a wider spread though, with Asia Pacific barely positive year over year and the Americas more than doubling.

Management’s outlook for fiscal 2023 falls in line with our current model’s assumptions with mid-single-digit sales growth, EBIT between EUR 350 and 375 million and growth in net income between 5% and 12%. Our forecasts tend to fall toward the lower end of the 2023 guidance with respect to sales and net income growth, while remaining more centered regarding EBIT and capital expenditures which management is anticipating will be from EUR 200 to 250 million for the full year.