Hugo Boss is back in charge

Hugo Boss is back in charge

The worst seems to be over for Hugo Boss. It could be time to pick up a storied European brand at a knockdown price

Knockdown prices have, in fact, been the German fashion designer’s key problem over the past 18 months—a period during which its shares have almost halved. In the U.S., the company has suffered not just from the department-store discounts that have afflicted most high-end clothing brands; but also from being overrepresented in specialist discounters like T.J. Maxx, undermining the appeal of its own boutiques. Management has responded by deliberately restricting U.S. sales, which plunged 14% year on year in the third quarter.

China has been the company’s other weak spot. A year ago, it cut its sky-high prices in the country by roughly 30 % to bring them closer to the global average as e-commerce and travel made the differences more obvious to Chinese consumers.

Third-quarter sales in China were 4% lower than the previous year at constant currencies. Yet given store closures and price cuts this was actually a heartening result, adding to a mounting body of evidence that Chinese consumers are regaining some of their former taste for luxury.

But what should really make investors happy are cost cuts. After a couple of profit warnings, Mark Langer was promoted in May from finance director to chief executive. He has been busy renegotiating leases and keeping a lid on head-office costs. This should halt the wave of earnings downgrades that have hit the stock over the past year.

Hugo Boss’s shares rose 8 % on November 2, 2016, yet remain far below their peak and don’t look too expensive at 17 times next year’s much improved earnings. That compares to 19 times for Burberry, which faces many of the same problems. With forecasts stable and a major strategy update due this month, the rally probably has further to run.

http://group.hugoboss.com

www.wsj.com

 


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