Hugo Boss shares sank 11 percent 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 came in at €121 million ($132 million), missing analysts’ average estimate of €129 million.

Still, sales rose 13 percent to €1.18 billion, boosted by a 33 percent jump in currency-adjusted revenue in the Asia-Pacific region. Revenue increased by 7 percent in the Europe, Middle East and Africa region and 18 percent 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 percent at €59 at 14:25 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 percent 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, up from €3.65 billion a year earlier.

Operating profit for the year was €410 million, at the midpoint of the company’s forecast range of €400 million to €420 million. Boss said it expected an operating profit margin of 9.8 percent for 2023, up from 9.2 percent in 2022.

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

By Helen Reid

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