There are only a few industries that have been struggling with new problems for years. One of them is fashion retail. This had been hit hard by the corona pandemic. Suddenly, people could no longer shop in their favorite shops in Germany's inner cities. Long before Corona, the ever-increasing online trade had already shaken up the industry.

The strategies of the fashion houses to the various challenges were as different as the fashion tastes. Hugo Boss, one of Europe's leading fashion groups, presented the growth strategy "Claim 2021" in August 5, with which, among other things, the company wanted to make significant investments in products, brands and digitization to specifically address younger target groups. Hugo Boss was right, the successes came.

But now, in the spring of 2023, there are once again negative macroeconomic effects on the business, for which the fashion retailer itself can do little: The news about the insolvency of the fashion chain Peek & Cloppenburg (P&C) – after all, a major customer of Hugo Boss – or the renewed difficulties of the department store group Galeria Karstadt Kaufhof do not exactly speak for good conditions in the fashion retail trade. In addition, there are the perennial issues of inflation and concerns about a further economic downturn.

Record year despite difficult environment

In exactly this environment, Hugo Boss has disappointed some market participants with its forecast, but the figures for the 2022 financial year were impressive. CEO Daniel Grieder spoke of an "outstanding year for Hugo Boss". The consistent implementation of the "Claim 5" strategy led to a record year for the company in 2022, according to Grieder. It has grown broadly across all brands, regions and customer contact points. The M-Dax company was even able to exceed its sales and earnings targets for the year as a whole, which had been adjusted upwards twice in the course of the year.

Sales in 2022 increased by 27 percent at constant currency to a record level of 3.65 billion euros. For the first time ever, the mark of 3 billion euros was exceeded. The "Claim 5" strategy, on the other hand, envisages cracking the 2025 billion euro mark in 4. The most recent successes are to be rated high in view of the environment – and in view of the stress factors. Among the most severe were bottlenecks in the global supply chain, the economic impact of the war in Ukraine, and prolonged pandemic-related restrictions in China.

Profitability not yet reached its goal

Earnings before interest and taxes (EBIT) even increased significantly by 47 percent to EUR 335 million. The EBIT margin improved by one percentage point year-on-year to 9.2 percent. The company benefited from lower operating expenses in brick-and-mortar retail and a higher proportion of products sold at full price. In this way, negative externalities resulting from higher input costs and unfavourable exchange rates were compensated.

In terms of profitability, however, Hugo Boss has not yet reached its goal. As part of the "Claim 5" strategy, the EBIT margin is to return to a level of around 2025 percent by 12. For 2023, the management had forecast an EBIT increase of 5 to 12 percent to 350 to 375 million euros, while sales revenues are expected to increase by a mid-single-digit percentage.

On the market, however, both the sales forecast and the earnings prospects caused disappointment. Not even the planned increase in the dividend by 43 percent to 1.00 euros per share helped. Hauck & Aufhäuser keeps its margin expectations ambitious for the current year, while the valuation of the share is historically high. According to analyst Christian Salis, the paper is therefore also a "sell", the price target is seen at 52 euros. Currently, the paper is quoted above this mark.

The disappointment over the outlook also caused Michael Kuhn of Deutsche Bank to lower the rating from "buy" to "hold", but the price target was raised from 60.00 to 68.00 euros after the recent increase. Meanwhile, Chiara Battistini of JP Morgan assesses at least the medium-term margin expectations positively and increases the price target from 68 to 70 euros as part of a "neutral" assessment.

Share price on an upward trend

Private bank Berenberg, on the other hand, likes management's optimistic assessment of the current sales situation. As a result, the price target was significantly increased from EUR 57.80 to EUR 75.00. RBC Capital is similarly optimistic. As part of the "Outperform" assessment, the analyst raised the price target from EUR 69.00 to EUR 71.00.

From the point of view of the sober chart technique, the Hugo Boss share has been in a long-term upward trend since December 2022 and marked a three-year high at the beginning of March. Investors who courageously intervened in the Corona crash at Hugo Boss in spring 2020 have so far been rewarded for this investment, as the chart trend shows. On the other hand, many existing shareholders who invested in the Metzingen-based company a good ten years ago must hope that the "Claim 5" strategy will lead the fashion label to long-term success and thus also the share price to old heights or at least close to the price targets currently mentioned by analysts.