BOSSY - Hugo Boss: Encouraging Sales Growth And Effective Supply Chain Management

2023-03-11 04:35:41 ET

Summary

• Hugo Boss has seen encouraging sales growth as compared to the previous year.
• While inventories have risen over the past year, the company continues to manage its supply chain well.
• I take a bullish view on Hugo Boss.

Investment Thesis: I take a bullish view on Hugo Boss given strong sales growth in spite of inflationary pressures.

In a previous article back in January, I made the argument that Hugo Boss ( OTCPK:BOSSY ) could see bullish growth going forward on the basis of strong sales growth in an inflationary environment as well as increasing its supply chain capacity in Europe.

Since then, the stock is up by nearly 8%:

The purpose of this article is to assess whether the bullish upside that we have been seeing for Hugo Boss can continue from here - taking most recent performance into consideration.

Performance

When looking at the 2022 annual report for Hugo Boss, performance has been impressive - with earnings per share up to $3.04 from that of $1.99 in the previous year. Additionally, dividends per share are up to $1.00 from $0.70 in the previous year.

When looking at sales data, we can see that sales growth has outpaced growth in cost of conversation - up by 31% and 20% respectively.

The majority of sales continue to originate from the EMEA region:

Both brick-and-mortar retail and brick-and-mortar wholesale figures were up by over 30% on that of last year, with brick-and-mortar wholesale showing the highest level of growth on a percentage basis at over 38%.

From a balance sheet standpoint, we can see that the company's quick ratio (calculated as current assets less inventories all over current liabilities) has decreased from that of last year - indicating that Hugo Boss is in a slightly less favourable position to meet its current liabilities.

Source: Figures sourced from Hugo Boss Annual Report 2022 (in EUR thousands except the quick ratio). Quick ratio calculated by author.

With that being said, we can see that the increase in the quick ratio has been primarily due to an increase in inventories - which the company cites as being intentional with the view to supporting top-line momentum across the company's regions as well as allowing the company the ability to sell core merchandise across future seasons.

From this standpoint, I take the view that Hugo Boss has the capacity to bolster its quick ratio back to prior levels - and the fact that the company has bolstered inventory sufficiently to meet increased demand is encouraging.

Risks and Looking Forward

We have seen that in spite of inflationary pressures and supply chain concerns - Hugo Boss has continued to see strong sales growth.

Moreover, EMEA has continued to account for almost half of the company's production volume - with 14% of total sourcing and production volume for 2022 produced at the company's own facilities.

With these facilities located in the EMEA region - this presents a competitive advantage for Hugo Boss in that the company can respond to shifts in customer demand more quickly.

In this regard, I take the view that this will allow Hugo Boss to continue bolstering sales growth by being able to react to periods of growth in customer demand.

In terms of potential risks for Hugo Boss, the primary one at this time is the possibility that the spike in customer demand we have seen over the past year starts to plateau as a result of macroeconomic pressures and continued inflationary trends.

Such a development could leave Hugo Boss with excess inventory and place downward pressure on earnings.

With that being said, I take the view that the company has seen impressive sales growth to date in spite of rising prices - and I am optimistic that this trend can continue through 2023.

Conclusion

To conclude, Hugo Boss has seen strong sales growth in spite of inflationary pressures. Given recent performance, I take a bullish view on the stock.

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