Hugo Boss Stock Jumps as Selection Line Set for Marketing Push

Hugo Boss AG rose the most in five months in Frankfurt trading after the German luxury clothing company said it will spend a record amount on marketing this year to support the reintroduction of the Boss Selection line.

Spending on advertising and sponsorship will increase to about 6 percent of revenue from last year’s 5 percent following a positive response from retailers to the Selection products, Chief Financial Officer Mark Langer said. Marketing expenditure jumped 23 percent to 90.9 million euros ($132 million) in 2010, returning to the previous years’ level after declining in 2009.

“Retailers have reacted very positively to our new Boss Selection collection,” Langer said in an interview at the clothier’s Metzingen headquarters. The collection, which includes casual leather jackets for as much as 2,000 euros, was first shown at the Pitti Uomo fashion show in Florence, Italy, where the clothier booked one of the biggest exhibition stands and focused solely on the line, he said.

Hugo Boss’s preferred shares rose 6.4 percent to 70.01 euros as of the market’s 5:30 p.m. close in the biggest jump since Jan. 26, leading a 1.7 percent gain in Germany’s MDAX index of medium-sized companies.

“Boss is continuing on the right track to better capture its potential,” Juergen Kolb, a Credit Agricole Cheuvreux SA analyst in Frankfurt, said in a report today. “Besides a genre upgrade into the luxury category with its Selection collection, mainly for Asia, it is also tapping new customer groups.”

Expansion in China

Boss Selection represents about 4 percent of group sales, which the company forecasts will rise by at least 12 percent this year, excluding currency shifts. Hugo Boss, which gets almost two-thirds of revenue from Europe, is benefiting from rising demand for men’s wear in China, where it started a joint venture with retailer Rainbow Group last year, Langer said.

Chinese people “are crazy about brands like Hugo Boss and they are willing to pay much higher prices than western customers,” Thomas Effler, an analyst at WestLB, said in an interview. The Frankfurt-based analyst has a “neutral” recommendation on the stock.

Hugo Boss has outperformed the broader German market this year as most analysts advise clients to buy the stock. The preferred shares have risen 24 percent in 2011, compared with a 7.9 percent gain in the MDAX. Fifteen of 22 analysts monitored by Bloomberg have a “buy” rating on the stock, with only one advising clients to sell.

More Selection Products

The new Boss Selection line offers a wider range, including casual wear and sportswear, making the seasonal collection 25 percent to 30 percent bigger than before, the company said.

The increased advertising will demonstrate that the company is putting new clothing ranges into stores more frequently, Langer said. Hugo Boss has reduced the time taken to get fashions from the design board into stores by 12 weeks to 38 weeks, according to the executive.

“The customer shall learn that the themes of our collections are changing every six to eight weeks,” he said.

The clothier will introduce its first winter collections, which have been produced more quickly than usual, in October.

The new process will be of particular importance for women’s wear and sportswear where fashion changes faster than for men’s business suits and shirts, the CFO said.

China will probably become Hugo Boss’s third-largest market this year, overtaking France and the U.K., while still lagging behind Germany and the U.S., according to Langer.

The clothier operates three Selection mono-brand stores in Shanghai, Singapore and Macao and plans to add more in the Asia-Pacific region, he said.

Mainland China, which doesn’t include Hong Kong, Macau or Taiwan, will remain the fastest-growing market for high-end goods in 2011 as sales rise 25 percent to 11.5 billion euros, Bain & Co. said May 3. The country may become the world’s third-largest luxury market in five years, the consulting firm said.

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