Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Mr. Hugo Boss is putting his best foot forward once more. 

Look past Thursday's report that net income at Hugo Boss AG fell 39 percent in 2016 from the previous year, and that the dividend would be cut.

That grim news was actually devoid of nasty surprises, and the situation is a far cry from what the company was facing just over a year ago, when it delivered a severe profit warning and announced the resignation of its previous Chief Executive Officer, Claus-Dietrich Lahrs.

The seller of suits to affluent professionals now says there's a chance of it returning to profit growth in 2017. 

China Syndrome
Hugo Boss's Asian revival could help offset a still-difficult U.S. and sluggish Europe
Source: Company report

The company is benefiting from an improvement in mainland China, where same-store sales rose almost 20 percent in the final quarter. Boss generates about 16 percent of its sales from consumers based there, according to analysts at Exane BNP Paribas, so a revival will make a big difference.

New CEO Mark Langer's strategy to overhaul the business is sensible, as Gadfly has argued. He expects the first fruits of this revamp to be felt this year, although the full effects won't come into force until 2018.

Investors are certainly betting he'll produce a recovery. The shares are up 35 percent since October, amid China's revival and hopes that U.S. tax cuts will stoke American sales. They trade on a forward price earnings ratio of 18.2 times, just behind the Bloomberg Intelligence luxury peer group. That's a sharp narrowing of the discount over the past year.

Suits You, Sir
CEO Mark Langer's strategy has helped revive Boss's shares
Source: Bloomberg

Langer's doing all the right things, and has got off to a good start. But there are some wrinkles in the Hugo Boss suit that could spoil the look.

Selling clothing, particularly suits, is more difficult given that customers have fallen out of love with refreshing their wardrobes, but may yet be tempted to buy the latest handbag styles. Analysts at Exane BNP Paribas point out that over 80 percent of Boss's sales are apparel. And in the suiting category, it's particularly at risk from new entrants with a lower price point and innovative business models, such as Suit Supply and Bonobos.

Return of the Boss
Pickup in forward p/e ratio reflect prospects for Hugo Boss to return to profit
Source: Bloomberg Intelligence

There could also be more turbulence as Langer continues his overhaul, particularly as paring back supply to the U.S. may take its toll on sales there.

And Boss's positioning in merely the premium, rather than top-end, luxury echelon remains a worry. It's those aspirational workers who are more mindful of economic uncertainty than the super rich. 

But there is one wildcard.

Boss shares jumped last month on a Manager Magazin report that billionaire investor Albert Frere had purchased a stake. No holding has been disclosed and Langer declined to comment on Bloomberg Television on Thursday.

An activist would be a little late, given that Langer has already been installed and set out his strategy.

But an arrival can't be ruled out. An agitator would really give Mr. Hugo Boss some company. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net