(Bloomberg Opinion) -- Hugo Boss AG is sharpening its suit.
The German outfitter to affluent professionals has set out its stall for the next four years. The company said Thursday it aims to lift sales growth excluding currency movements from 4 percent this year to an annual 5-7 percent by 2022, and forecasts the operating margin will increase to 15 percent from the 12 percent estimated by analysts for 2018.
These targets provide another useful staging point in Chief Executive Officer Mark Langer's turnaround. He previously guided that sales would outperform the market from 2019, and the operating margin would improve.
On the face of it, these goals look achievable. The current consensus indicates a compound annual growth rate of 4.6 percent over 2019-2020, according to Luca Solca, analyst at Exane BNP Paribas.
But there are some elements that are more demanding, and will need careful management.
Firstly, the apparel sector is more difficult than other parts of the luxury market, such as handbags. Here, Boss is particularly vulnerable: third-quarter profit came in lower than analysts expected after unseasonably warm weather led to a surge in discounting in Europe.
Secondly, Boss has raised its bar just as the risks of a slowdown in the broader luxury market, particularly in China, seem to be rising. Langer expects Asian sales to increase by a double-digit percentage annually by 2022.
That looks ambitious, particularly if Chinese consumers run out of steam again. In addition, the brand's positioning as merely premium rather than super-luxury makes it more sensitive to swings in shoppers’ confidence and the economic outlook.
Finally, Boss is aiming to quadruple sales in its own online business by 2022. That may be possible, given that luxury shoppers are increasingly turning to the internet, but the target still seems pretty aspirational.
As I have argued, Langer is doing all the right things. He has streamlined the confusing collections of brands and focused on the core menswear customer, Mr. Hugo Boss. In womenswear, he is concentrating on work clothes.
He has also tackled the store base and taken steps to beef up the digital offering, such as through a partnership with Zalando SE.
His aim now is to move to the next stage of regeneration, adopting the tactics of Inditex's Zara by improving the speed at which Boss gets the latest looks to its stores. Having versions of trends that appeal to its sophisticated customers, in a timely manner, should leave it with less unsold stock.
And a plan to adapt the shopping experience and the product range to the individual needs of its clientele, such as by offering made-to-measure shoes, is another way to boost revenue.
As with earlier elements of the strategic plan, these initiatives look sensible. But investors may not be fully convinced. The shares fluctuated after the announcement, though Thursday’s trading across Europe has been volatile.
Hugo Boss stock is down more than 20 percent from since it reached its 2018 peak in the middle of the year, and trades on a forward price earnings ratio of 16, a discount to the average for the Bloomberg Intelligence top luxury peer group.
To close the gap to rivals Langer needs to show that he can deliver on his targets. Hopefully hasn't cut his suit too tight, and left enough slack to cope with any unexpected changes.
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Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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