Hugo Boss shares sink as profit disappoints

By Helen Reid

(Reuters) - Hugo Boss shares sank 11% on Tuesday after its fourth quarter operating profit missed expectations, adding to signs of strain among fashion brands, though sales continued to grow.

Quarterly earnings before interest and tax (EBIT) came in at 121 million euros ($132 million), missing analysts' average estimate of 129 million euros.

Still, sales rose 13% to 1.18 billion euros, boosted by a 33% jump in currency-adjusted revenue in the Asia-Pacific region. Revenue increased by 7% in the Europe, Middle East and Africa (EMEA) region and 18% in the Americas.

In a context of rising wages, high interest rates, and fragile demand, the market is increasingly focused on companies' ability to protect profit margins.

Hugo Boss shares were down 11% at 59 euros at 1425 GMT, set for their worst day since March 2020.

"This is disappointing but not a disaster, and I think the share price reaction is exaggerated from my point of view," said Thomas Joekel, who manages a fund at Union Investment holding Hugo Boss shares.

Boss' earnings miss also comes after profit warnings from Burberry and JD Sports, painting a worrying picture of demand for fashion brands.

"It seems there is a broad deceleration in luxury and apparel," said Joekel.

Shares in the German premium fashion group gained 25% over 2023 as investors grew more confident about a brand revamp that has brought in new customers in Asia and helped it maintain sales momentum despite weak demand in Europe.

Boss' fourth-quarter operating profit was likely dented by discounting, said RBC analyst Manjari Dhar.

"The market in general has been more promotional across Q4 and Boss has had to follow suit in order to remain competitive," she said.

For the full year, Hugo Boss sales reached 4.2 billion euros, up from 3.65 billion a year earlier.

Operating profit (EBIT) for the year was 410 million euros, at the midpoint of the company's forecast range of 400 million to 420 million euros. Boss said it expected an operating profit margin of 9.8% for 2023, up from 9.2% in 2022.

The brand is targeting an EBIT margin of at least 12% by 2025, with 5 billion euros in revenue and an operating profit of at least 600 million euros. Full 2023 results are set to be released on March 7.

($1 = 0.9182 euros)

(Reporting by Linda Pasquini and Helen Reid; Editing by Milla Nissi, Bernadette Baum and Mark Potter)