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-By Ankita Dutta
UBS, a major Swiss bank, believes that the successful turnaround of fashion manufacturer Hugo Boss has only just begun. In a research note released on Wednesday, analyst Susy Tibaldi stated that the fashion manufacturer’s margin potential is still underestimated, and that the company is undervalued compared to its peers within the industry. According to Tibaldi, “Hugo Boss is back in fashion” and attributed this, in part, to an effective social media campaign that has made the brand more relevant to its young target audience over the past year and a half.
Hugo Boss’ social media campaign has been successful, particularly on the popular platform TikTok, where the company has gained more followers than its three competitors combined. Tibaldi also praised the brand’s focus on casual wear and women’s fashion, which has expanded its reach beyond its traditional target audience. These efforts have been supported by the remodeling of stores and have led to sales that have exceeded expectations in only the second year of the brand’s relaunch.
UBS has included Hugo Boss in its valuation with a “buy” rating, issuing a price target of 87 euros. Tibaldi trusts the MDax-listed stock to return to its record high of 120.40 euros, which it achieved in 2015 before falling to one-sixth of that value by March 2020. During the morning of Wednesday, the shares experienced a substantial surge towards the 68 euro mark.
According to Tibaldi, Hugo Boss shares are undervalued, as despite above-average growth in earnings per share, the discount to the rest of the industry is around 20 percent. According to her, the untapped opportunities for profit margins in the fashion production industry are often overlooked and could unlock an entirely different growth perspective.
With normalized freight costs, which were previously inflated due to the pandemic, and the implementation of price increases for its products, Tibaldi believes that this should more than compensate for the ongoing investments in the brand and digitization in the future.
Tibaldi also sees the upcoming Capital Markets Day scheduled for June 15 as a potential price driver for Hugo Boss shares. She believes that the business has the potential to surpass its current projections and is confident in the strength of its brand even amidst challenging market conditions and fluctuating customer attitudes. However, she acknowledges that her optimistic outlook carries a degree of risk due to the uncertain economic climate.
Overall, UBS expects that the stock’s total return (share price gain plus dividend) will exceed the market’s expected return by at least six percent over the next twelve months.
