Hugo Boss shares sank by 12 per cent on Tuesday (Jan 16) after its operating profit for the fourth quarter missed expectations, though sales continued to grow.

Earnings before interest and tax (Ebit) came in at 121 million euros (S$176.6 million), missing analysts’ average estimate of 129 million euros. Citi analysts said the profit miss was “a reminder of how much the company is investing to support top line momentum”.

Hugo Boss last year opened a “digital campus” with consultancy Metyis, aiming to make better use of data to improve its online sales. It is also investing a total of 200 million euros to expand a warehouse and upgrade its headquarters.

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

In a context of rising wages, still-high interest rates, and fragile demand, the market is increasingly focused on companies’ ability to protect their profit margin.

Hugo Boss shares were down 12.3 per cent at 58.1 euros by 1100 GMT, set for their worst day since March 2020 after the trading update.

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Hugo Boss grew sales by 13 per cent in the fourth quarter to 1.18 billion euros, boosted by a 33 per cent jump in currency-adjusted revenue in the Asia-Pacific region. Revenue increased by 7 per cent in the Europe, Middle East and Africa (EMEA) region and 18 per cent in the Americas.

For the full year, sales reached 4.2 billion euros in 2023, up from 3.65 billion a year earlier. The company had expected sales of between 4.1 billion and 4.2 billion euros.

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. Hugo Boss said it expects an operating profit margin of 9.8 per cent for 2023, up from 9.2 per cent in 2022.

Hugo Boss is targeting an Ebit margin of at least 12 per cent by 2025, with 5 billion euros in revenue and an operating profit of at least 600 million euros.

The company will release its full 2023 results and forecast for 2024 on March 7. REUTERS