Hugo Boss shareholder Frasers warns it won’t back dividends

[LONDON] Frasers Group warned Hugo Boss it will vote against any dividends, as the British retailer owned by billionaire Mike Ashley exerts its influence after years of building a stake in the German fashion house.

Hugo Boss’s management should prioritise funding long-term growth and financial flexibility over paying out dividends, Frasers said in a statement late Thursday (Jul 3). It also said the company’s stock is undervalued and called on Hugo Boss to redeem all its treasury shares.

“Despite the company’s strong free cash flow profile, cutting dividends could free up additional funds which could be reinvested to improve the quality of growth,” said Felix Dennl, an analyst at Bankhaus Metzler.

Shares of Hugo Boss closed 4 per cent higher on Friday, with trading volume more than quadruple the 20-day average.

Founded by Ashley and previously known as Sports Direct, Frasers has a reputation for growing large stakes in other retailers and often using that holding to influence decisions at board level. That now appears to be its approach to Hugo Boss, just weeks after Frasers chief executive officer Michael Murray, Ashley’s son-in-law, joined the brand’s supervisory board.

Frasers and Hugo Boss have had a long relationship that includes the British retailer selling the fashion brand’s stock across its stores and online. Ashley’s company holds 25 per cent of voting rights in Hugo Boss, according to a filing last month, with exposure to a further 32 per cent through the sale of put options.

Frasers said it will support Hugo Boss chief executive officer Daniel Grieder and Stephan Sturm, chairman of its supervisory board, in growing the fashion brand. It also said it does not rule out adding to its interests in the company over the next year, subject to market conditions.

New strategy

In its response, Hugo Boss said it maintains an active and constructive dialogue with all shareholders, and appreciates the engagement with Frasers. The company will outline a new strategy at a capital markets day in the fourth quarter, including an evaluation of how capital is allocated to keep aligning the company’s long-term goals with shareholder interests.

Hugo Boss also said that while it has not seen any downside in keeping 1.4 million treasury shares acquired between 2004 and 2007, it is now considering redeeming them as Frasers requested.

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“I do agree with Frasers on the undervaluation of Hugo Boss’s shares,” said Jelena Sokolova, an analyst at Morningstar. “So from that perspective, buybacks or treasury cancellation would make sense.”

Frasers has a record of high-profile clashes with companies in which it holds stakes. Last year, it walked away from an attempted takeover of British handbag maker Mulberry Group, but still pushed for a board seat.

In a spat with online fast fashion chain Boohoo Group, Frasers accused co-founder and executive chairman Mahmud Kamani of wrecking the retailer’s value and tried to remove him as a director. It also tried to block Boohoo from changing its name to Debenhams earlier this year. BLOOMBERG