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INDEPENDENT RESEARCH UPDATE Hugo Boss

31st October 2012 Upgraded to Buy Luxury & Consumer Goods FV EUR90 vs. EUR88 (price EUR76.94) BUY vs. NEUTRAL

Bloomberg BOSS GR Reuters BOSG_p.DE 12-month High / Low (EUR) 89 / 54 Market capitalisation (EURm) 5,417 Enterprise Value (BG estimates EURm) 5,597 Avg. 6m daily volume ('000 shares) 113.3 Free Float 42.0% 3y EPS CAGR 12.5% Gearing (12/11) 36% Dividend yield (12/12e) 3.99%

We upgrade our recommendation on Hugo Boss to Buy from Neutral. We trim our earnings estimates by 2% on average to reflect a more cautious scenario, but we increase our Fair Value to EUR90 from EUR88 as we roll over our DCF to 2013. The reasons for our upgrade are: 1). after a clear under-performance vs. Luxury peers in the past three months, we believe the poor short-term negative newsflow is priced in; and 2) the valuation is attractive in view of Hugo Boss’ earnings growth profile.

Hugo Boss’s share price has lagged peers’ by 13% in the past 3 months. In the past three months, Hugo Boss shares declined 13.5% vs. -0.7% on average for the Luxury sector. We believe the under-performance is linked to: 1). below-consensus FY12 EBITDA guidance, published with Q2 12 results; and 2). Hugo Boss’s mix toward apparel (>90% of sales) and Europe (c.60% of sales), making it a more cyclical proposition in the context of the current slow-down.

Q3 was the worst quarter of 2012, and Q4 should accelerate markedly. FX-neutral sales were flat in Q3, down from +12% in H1. The deceleration was linked to wholesales sales (down 9% due to timing shifts and cautious ordering), as well as a slow-down in final consumption (retail LFL sales +2% vs. +4% in Q2). In Q4 we expect 12% FX-neutral sales growth and 30% EBITDA growth. Management gave some positive signals for 2013, including a potential pick-up in China, continued US market share gains, clean inventories at wholesale distributors and a strong performance of replenishment in Q3.

Attractive mid-term story. Hugo Boss has a number of levers to boost sales medium-term (2011-15e CAGR of 10%), mainly expanding in China (helped by its strong menswear offering), share gains in the US (including a shop-in-shop strategy with department stores) and growing the womenswear segment. Margins should be boosted by an improving product mix and operational improvements through the roll-out of the DRIVE project at the retail level.

Attractive valuation. Hugo Boss is trading at 15.3x PE13e, which represents a 1% discount to the Luxury sector. We find this attractive as we expect Boss to record a 2012-15e EPS CAGR of 15% vs. 12% for the sector.

YE December 12/11 12/12e 12/13e 12/14e Revenue (EURm) 2,059 2,311 2,521 2,765 EBIT (EURm) 394.09 434.48 489.08 558.60 Basic EPS (EUR) 4.04 4.39 5.01 5.76 Diluted EPS (EUR) 4.04 4.39 5.01 5.76 EV/Sales 2.7x 2.4x 2.2x 2.0x EV/EBITDA 12.0x 10.9x 9.6x 8.3x EV/EBIT 14.2x 12.9x 11.3x 9.8x P/E 19.0x 17.5x 15.3x 13.4x ROCE 34.8 33.7 34.8 37.0

30/10/12

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BOSS (HUGO) (XET) STOXX EUROPE 600 E - PRICE INDEX

Source: Thomson Reuters Datastream

Analyst: Sector Analyst Team: Peter Farren Nikolaas Faes 33(0) 1 56 68 75 72 Loïc Morvan pfarren@bryangarnier.com Cédric Rossi

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Income Statement (EURm) 2009 2010 2011 2012e 2013e 2014e Revenues 1,562 1,729 2,059 2,311 2,521 2,765 Change (%) -7.4% 10.7% 19.0% 12.3% 9.1% 9.7% Adjusted EBITDA 225 336 468 515 580 660 EBIT 155 264 394 434 489 559 Change (%) -18.5% 69.8% 49.3% 10.2% 12.6% 14.2% Financial results (18.8) (14.8) (11.7) (18.9) (14.0) (13.0) Pre-Tax profits 137 249 382 416 475 546 Exceptionals NM NM NM NM NM NM Tax (32.7) (59.9) (91.4) (99.7) (114) (131) Profits from associates 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests 0.01 (3.3) (6.5) (7.0) (8.0) (9.2) Net profit 104 186 284 309 353 405 Restated net profit 104 186 284 309 353 405 Change (%) -7.2% 78.7% 53.0% 8.5% 14.3% 14.8% Cash Flow Statement (EURm) Operating cash flows 160 318 376 397 452 516 Change in working capital 184 (9.2) (74.5) (66.4) (45.6) (47.6) Capex, net (48.3) (55.6) (108) (124) (135) (148) Financial investments, net 4.1 (6.4) 0.04 0.0 0.0 0.0 Dividends (94.9) (66.6) (140) (199) (216) (247) Other (115) 1.1 (148) 0.0 0.0 0.0 Net debt 408 238 188 180 125 52.3 Free Cash flow 295 253 193 207 271 320 Balance Sheet (EURm) Tangible fixed assets 270 264 286 314 343 374 Intangibles assets 101 127 141 143 146 149 Cash & equivalents 114 295 200 208 263 336 current assets 516 593 724 817 885 960 Other assets 63.2 75.8 98.3 98.3 98.7 99.1 Total assets 1,065 1,355 1,449 1,581 1,736 1,918 L & ST Debt 522 533 389 389 389 389 Others liabilities 337 461 537 554 566 582 Shareholders' funds 205 361 523 638 782 947 Total Liabilities 1,065 1,355 1,449 1,581 1,736 1,918 Capital employed 731 790 932 1,030 1,107 1,189 Financial Ratios Operating margin 9.95 15.26 19.14 18.80 19.40 20.20 Tax rate 23.90 24.05 23.91 24.00 24.00 24.00 Net margin 6.66 10.75 13.82 13.36 14.00 14.66 ROE (after tax) 50.62 51.46 54.37 48.39 45.17 42.79 ROCE (after tax) 14.32 26.37 34.82 33.66 34.79 36.98 Gearing 199 65.90 35.95 28.27 16.02 5.52 Pay out ratio 64.37 75.37 69.98 70.00 70.00 70.00 Number of shares, diluted ('000) 70,400 70,400 70,400 70,400 70,400 70,400 Data per Share (EUR) EPS 1.48 2.64 4.04 4.39 5.01 5.76 Restated EPS 1.48 2.64 4.04 4.39 5.01 5.76 % change -7.2% 78.7% 53.0% 8.5% 14.3% 14.8% EPS bef. GDW 1.48 2.64 4.04 4.39 5.01 5.76 BVPS 2.92 5.13 7.43 9.07 11.10 13.46 Operating cash flows 2.27 4.51 5.34 5.64 6.42 7.32 FCF 4.20 3.59 2.74 2.94 3.85 4.55 Net dividend 0.97 2.03 2.89 3.07 3.51 4.03

Source: Company Data; Bryan, Garnier & Co ests.

Company description Hugo Boss was established in Metzingen, Germany in 1924 and produced its first off-the-peg suits in the 1960s. The BOSS brand was created in the 1970s and the group had its IPO in Frankfurt in 1985. Today, Hugo Boss is a leading premium/luxury apparel manufacturer based in Metzingen, Germany. Its range is comprised of 5 formats: BOSS Black (the core brand), BOSS Selection (positioned at the luxury end), BOSS Green (sportswear), BOSS Orange (casualwear) and HUGO (avant-garde design). Hugo Boss operates over via 6,300 points of sale in 124 countries with a workforce of approx.11,000. By 2015, the company aims to achieve sales of EUR3bn and EBITDA of EUR750m, driven by retail expansion, a channel that should contribute 55% of sales in 2015 vs. 45% in 2011. The largest shareholder is Permira with 65.7% of the capital.

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1. Valuation 1.1. Our new DCF yields a Fair Value of EUR90 Our Fair Value of EUR90 (vs. EUR88 previously) is derived from a Discounted Cash Flow computation using the following criteria:

• A WACC of 9.7% based on an equity risk premium of 6.3% and a beta of 1. • A terminal growth rate of 3% and an operating margin of 21.5% by 2016. Our top-

line estimates in the 2015-20e period are conservative as we factor in mid to low-single digit growth.

Fig. 1: Explicit estimates

(EURm) 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Sales 2,311 2,521 2,765 3,021 3,202 3,362 3,530 3,671 3,818

% growth 12.3% 9.1% 9.7% 9.2% 6.0% 5.0% 5.0% 4.0% 4.0%

EBIT 434 489 559 643 688 723 759 789 821

EBIT margin 18.8% 19.4% 20.2% 21.3% 21.5% 21.5% 21.5% 21.5% 21.5%

Source: Bryan, Garnier & Co ests.

Fig. 2: DCF computation

(EURm) 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Cash-flows 282 330 390 438 473 497 523 544

WACC discount factor 1.00 0.91 0.83 0.76 0.69 0.63 0.57 0.52

NPV of cash-flows 282 301 324 332 327 313 300 285

Residual value 8,201

NPV of residual value 4,290

Total present value 6,753

- Net debt 180

= Value of shareholders’ funds 6,572

- Value attributable to minorities 238

= Value to common shareholders 6,334

Number of shares outstanding (m) 70.4

Theoretical value per share (EUR) 90.0

Source: Bryan, Garnier & Co ests.

DCF rollover nudges up our Fair Value

The increase in Fair Value to EUR90 from EUR88 is linked to the roll-over to 2013 estimates in our DCF computation, partly offset by lower earnings estimates. As detailed in Fig. 3, we lower our 2012-14e earnings estimates by 2% on average. Our sales estimates are nudged down 1% partly due to the increase of the EUR vs. USD and our margin assumptions are also slightly more cautious near-term as a result of the more difficult environment.

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Fig. 3: Changes to earnings estimates

(EURm) 2012e Previous 2013e Previous 2014e Previous

Sales 2,311 2,335 2,521 2,549 2,765 2,769

% revision -1% -1% 0%

EBIT 434 441 489 497 559 557

% revision -2% -2% 0%

EPS (EUR) 4.39 4.54 5.01 5.14 5.76 5.79

% revision -3% -3% 0%

Source: Bryan, Garnier & Co ests.

1.2. Attractive valuation multiples Following a decline in the share price (down 13% in the past 3 and 6 months respectively), Hugo Boss is trading at 15.3x PE13e and 11.3x EV/EBIT 2013e vs. a 5-year average of 12.8x and 12x respectively. Hugo Boss’s EV/EBIT multiple stands out as being particularly attractive, especially given Hugo Boss’ punchy earnings growth profile.

Fig. 4: Evolution of Hugo Boss’ss forward EV/EBIT multiple (consensus ests.)

Source: FactSet

Fig. 5: Hugo Boss’s peer group (priced as of 30/10/2012)

Last share price Market cap (EURm). EV/Sales EV/EBIT P/E ratio EPS CAGR

2012e 2013e 2012e 2013e 2012e 2013e 2012-15e Hugo Boss EUR 76.94 5,417 2.42 2.22 12.88 11.33 17.54 15.34 15.0%

Burberry GBP 11.53 6,012 2.43 2.17 11.98 10.54 17.72 15.95 11.0%

LVMH EUR 125.0 63,494 2.41 2.17 11.33 9.98 17.32 15.71 10.1%

Tod’s EUR 88.70 2,715 2.65 2.39 12.14 10.72 18.23 16.42 12.3%

Ferragamo EUR 15.80 2,661 2.30 2.04 13.79 11.32 25.86 18.90 21.2%

PPR CHF 382 12,297 1.62 1.40 6.71 5.67 14.08 12.73 7.6%

Swatch CHF 60.0 26,005 2.23 1.93 9.66 8.37 15.43 13.68 9.8%

Richemont 2.27 2.02 10.94 9.43 18.11 15.56 12.0%

Sector mean 6% 10% 18% 20% (3%) (1%)

Boss premium vs. peers (0%) 2% 8% 8% (1%) (4%)

Source: FactSet; Bryan, Garnier & Co ests.

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Relative to the Luxury sector (see table in Fig. 5), Hugo Boss is trading at a 1% discount on a PE13e metric. We argue Hugo Boss’ relative valuation has become attractive again given expected earnings growth rates. Looking at the period 2012-2015e (so factoring out this year’s growth), we estimate Boss will record an EPS CAGR of 15% vs. consensus expectations of +12% for the sector.

1.3. Shareholder structure The key question mark hanging over Hugo Boss’s shareholder structure is the possible exit of private equity house Permira, which bought a majority stake in June 2007.

In November 2011, Permira sold 4.5m preferred shares to investors via an accelerated book-building placement at EUR68.25 per share. Permira’s shareholding thus declined to 65.7% of the total from 72%. At its AGM on 3rd May this year, Hugo Boss converted all preferred shares (c.49% of the total) into ordinary shares, thereby simplifying the share structure.

Permira’s lock-up period ended on 14th May, so it is free to continue to sell down its stake. Clearly, as a private equity investor, it is likely that it will do so, although we do not know whether this will be a gradual process or not. In July, Permira sold its stake in Valentino to a Qatari fund for around EUR700m, prompting speculation that Hugo Boss would be next in line for a sale.

A full sale of Permira’s 66% stake (to an emerging market fund?) should be positive for the share price insofar as it would prompt speculation of a takeover offer for the remaining shares. A private placement could be negative in the short-term as the price is likely to be below the market price, as it usually is for placements. Clearly, it would be in Permira’s interest to find an outright buyer. Given the buyer would end up with a controlling stake, it would likely optimise the value of Permira’s investment.

Fig. 6: Hugo Boss’s shareholders (October 2012)

Source: Company Data

Permira66%

Free float32%

Treasury shares2%

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2. An attractive entry point After Hugo Boss’s relative underperformance in the past six months, and even more markedly in the past three months, we believe the current share price offers an attractive point to play the medium-term story.

2.1. A recent under-performer As shown in Fig.7, Hugo Boss shares declined 13% in the past three months, under-performing Luxury peers by 13% on average. We believe the reasons for this under-performance are:

• During the Q2 results release, management gave FY12 EBITDA guidance (10-12% growth) which was below consensus estimates (+14% at the time). Back then , Boss shares were trading at 17x PE13e, a mid-single digit premium to the sector;

• Hugo Boss’s product mix tilted toward apparel (>90% of sales) makes it a more cyclical investment proposition, and therefore less attractive in the context of the current slow-down. Furthermore, the weight of Europe (c.60% of sales) is greater than the sector average, and Hugo Boss does not benefit as much from tourist flows as tourists tend to spend more on accessories and hard luxury than apparel.

Fig. 7: 3-month share price performance (%)

Source: Thomson Reuters

As discussed in the valuation section, Hugo Boss is trading at a mid-single digit discount to Luxury peers on a forward P/E basis, whilst it was trading at a mid-single digit premium at the beginning of the year (see Fig. 8 for a 5-year history). We believe the market has now fully accounted for the negatives surrounding Hugo Boss, namely lower exposure to tourist flows due to its positioning in apparel, and the weight of Europe (60% of sales).

Absolute performances4

MULBERRY GROUPBOSS (HUGO) (XET)COACHBURBERRY GROUPHERMES INTL.CHRISTIAN DIORTHE SWATCH GROUP 'B'SALVATORE FERRAGAMOLVMHRICHEMONTTIFFANY & COPPRTOD'SPRADA

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Fig. 8: Evolution of Hugo Boss’s premium/discount vs. the sector (forward P/E)

Source: FactSet

2.2. The outlook is brighter after a poor Q3 After a strong slow-down in Q3 sales, we expect a significant pick-up in Q4. Management also gave positive signals for 2013 during the Q3 conference call.

Q3 should be the year’s worst quarter...

Q3 12 results, which were published yesterday, came in below consensus estimates. FX-neutral sales were flat vs. c.+4% expected, and down from +12% in H1. The key reasons for this slow-down were:

• the higher proportion of slower-growth wholesale sales in Q3 (57% vs. 35% expected in Q4), leading to a negative channel mix;

• a 9% wholesale sales decline due to cautious order-taking from retailers and a shift to a 4-season cycle, up from 2 previously (which will shift some orders to Q4), as well as early deliveries into Q2;

• retail same-store sales grew 2%, a slight slow-down vs. the +4% in Q2.

Q3 EBITDA dropped 7% to EUR165m vs. our estimate of EUR187m. The gross margin (+130bps to 60.1%) was boosted by the growth of retail in spite of higher discounting, but cost inflation (retail and marketing) drove the opex ratio up 510bps.

...and management confidently confirmed guidance, boosted by a pick-up in Q4.

Management confirmed FY12 guidance of close to 10% FX-neutral sales growth and 10-12% EBITDA growth. Indeed, we anticipate a pick-up in sales growth to +12% in Q4, driven by a channel mix tilted toward retail (around 60% of Q4 sales), as well as the shift to Q4 from Q3 at the wholesale division, as discussed earlier.

Our 2012 EBITDA estimate (+10% to EUR515.5m) is at the lower end of guidance, and implies close to 30% growth in Q4. We expect the gross margin to rise in line with Q3 (+130bps) as the channel mix should be a little less favourable but discounting should be lower. The recent share

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price under-performance discussed above leads us to believe the market has factored in the fact that consensus could nudge down estimates.

Some positive signals for 2013

During the Q3 results conference call, management indicated it expected positive momentum for 2013 and that this would be another step toward achieving 2015 targets. We would highlight three factors specifically:

• For the wholesale division, inventories are clean at the retail level. In addition, replenishment was up double-digit in Q3, suggesting weak pre-orders may not be a true reflection of the current environment. This could lead to a marked improvement in orders next year if this is confirmed;

• Based on a clear improvement in Hong-Kong in the past few weeks and recent activity in stores, management believes traffic flows could pick up in China in Q4 12 or early 2013;

• In the US, Hugo Boss is still winning market share, and the company believes this will continue based on retailers’ feedback.

2.3. An attractive medium-term story We expect Hugo Boss to record a 2012-15e EPS CAGR of 15%, driven by both sales growth (2012-15e CAGR of 9%) and margin expansion (EBITDA margin to expand 230bps to 25% in 2015 vs. 22.7% in 2011).

2.3.1. Significant top-line potential We would highlight Asia, the US and womenswear as the greatest expansion opportunities for Hugo Boss.

1). Under-represented in the US, with an attractive positioning

We argue Hugo Boss is still under-represented in the US relative to peers. As a yardstick, Fig.9 shows how Hugo Boss compares with other Luxury players in terms of store numbers. At end-September 2012, Boss operated 44 DOS and 27 outlets in the US.

Regarding its positioning, Hugo Boss is in an attractive niche as a modern, fashionable European brand with affordable pricing. The Boss Black brand is particularly competitive in formal wear, with suits in the USD700-1,000 range when Italian brands of similar quality are priced USD1,200-1,300.

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Fig. 9: Number of stores in the US (mainline and outlets)

Source: Company Data

Hugo Boss aims to open 10 stores p.a. in the US, mainly in smaller cities. As for wholesale, Hugo Boss is looking to expand the number of shop-in-shops with existing department stores, as illustrated in Fig.10. Expanding shop-in-shops makes sense insofar as sales densities are over one-third higher than stand-alone stores given they benefit from mall traffic. We expect more detail on 2013 plans during the investor days in New York on 6th December.

Fig. 10: Hugo Boss’s shop-in-shop expansion in the US

2010 2011 2012e

Bloomingdale's 1 7 14

Saks 1 8 13

Total 2 15 27

Source: Company Data; Bryan, Garnier & Co ests.

2). Well positioned to capitalise on Asian growth

We expect sales in Asia to grow at a CAGR of 15% in the period 2011-15e. Specifically, Hugo Boss aims to open 20 stores p.a. in China (from a base of 99 stores at end-2011). There will be additional flagship stores in key cities (including Beijing and Shanghai), but management also aims to increase penetration in Tier 2 and Tier 3 cities. Furthermore, Hugo Boss has started to build an e-commerce platform, to be launched end-2012 or early 2013. Hugo Boss has already bought back two franchisees in Greater China (ImagineX for China in 2011/12 and Chieh Ger for Taiwan in 2012) and now controls around about 85% of its operations in the region.

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Fig. 11: Evolution of Hugo Boss’s sales split by channel in Greater China

Source: Company Data

We argue the Hugo Boss brand is ideally positioned to capitalise on growth opportunities in the Chinese market. This view is based on the brand operating essentially in menswear (around 90% of sales), which is a clear positive given Chinese luxury spending is mainly driven by men, according to companies in the sector.

The latest Hurun report is testament to the progress made by Hugo Boss in terms of brand recognition in China. In the Fashion brand category, Hugo Boss ranked third in 2011 after Armani and Burberry, up from seventh position in 2007. This shows management’s marketing initiatives, aimed essentially at strengthening the luxury perception of the brand via flagship stores, sports sponsorship (sailing, golf, motorsports) as well as retail events and social media, have been effective.

Fig. 12: Hurun report: Best fashion brands in China

Rank 2007 2011

1 Armani Armani

2 Louis Vuitton Burberry

3 Dunhill Hugo Boss

4 Versace Versace

5 Hermes Ports

6 Ports Chanel

7 Hugo Boss Louis Vuitton

8 Montblanc Dior

9 Gucci Givenchy

10 Prada Gucci

Source: Company Data; Hurun brand report

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3). A major opportunity in womenswear

Hugo Boss generated only 11% of 2011 sales in womenswear. We believe growth in this area represents a major opportunity for the company as the size of the womenswear market is significantly bigger than that of menswear’s (about twice as big according to company estimates). Management believes it can achieve sales of over EUR400m in this segment in the medium-term (vs. nearly EUR250m in 2011).

Womenswear is currently sold under four brands: Black, Orange, Green and HUGO. Hugo Boss now has a dedicated womenswear organisation that should enable it to improve its offering in terms of design and image. Starting in Autumn/Winter 2012, Hugo Boss will also launch a specific marketing campaign to boost awareness, with a presence at the New York Fashion Show next February.

2.3.2. Margin opportunity We forecast a 230bp EBITDA margin expansion in the 2011-15 period to 25% (in line with management’s guidance). We believe the key drivers of profitability improvement are:

• International expansion, and particularly the rising contribution from Asia in the group’s sales mix. In China, consumers have a preference for higher-end products, explaining the success of Boss Selection (13% of sales in China vs. 3% at the group level), and like-for-like prices are some 40% above Europe’s. In addition, operating costs are lower. We also highlight that prices are lowest in Germany, which still represents 18% of group sales: For example, like-for-like prices are c.10% higher in France and even 25% higher given the better mix.

• The roll-out of DRIVE. This project is aimed at improving operational processes, especially in the retail business, to better meet the need of the final consumer. Specifically, the aim is to increase the frequency of flow of goods in stores and react more quickly to changes in consumption behaviour. Hugo Boss implemented Project DRIVE in Europe in 2010/11, and is now rolling it out in the Americas and in Asia, which should be an important boost to productivity.

Hugo Boss’s margins are below peers’

Hugo Boss’s 2011 gross margin stood at 61.4%, well below peers’ (see Fig.13). We believe the group can close this gap thanks to the outperformance of retail, an improving product mix and the implementation of DRIVE. However, we also believe Hugo Boss’ gross margin is likely to remain structurally below its Luxury peer group given its high proportion of sales coming from apparel. The picture is slightly different at the EBIT level given Burberry and Ferragamo are aggressively expanding retail space, but Hugo Boss nevertheless remains significantly below the group average.

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Fig. 13: Comparison of gross margins in the Luxury sector (2011)

Source: Company Data; Bryan, Garnier & Co. ests.

Fig. 14: Comparison of EBIT margins in the Luxury sector (2011)

Source: Company Data ; Bryan, Garnier & Co. ests.

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Hermes Burberry Tod's Ferragamo Richemont Hugo Boss

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3. Financials

Fig. 15: P&L Statement

(EURm) 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Sales 1,686 1,562 1,729 2,059 2,311 2,521 2,765 3,021

% growth -7.4% 10.7% 19.0% 12.3% 9.1% 9.7% 9.2%

CoGS (779) (715) (702) (794) (862) (915) (976) (1,036)

Gross profit 907 847 1,027 1,265 1,449 1,606 1,789 1,985

Gross margin 53.8% 54.2% 59.4% 61.4% 62.7% 63.7% 64.7% 65.7%

Selling & distribution expenses (518) (488) (574) (682) (809) (897) (998) (1,097)

Administrative & other costs (198) (204) (189) (189) (206) (219) (232) (245)

EBIT 191 155 264 394 434 489 559 643

EBIT margin 11.3% 10.0% 15.3% 19.1% 18.8% 19.4% 20.2% 21.3%

D&A (61) (69) (72) (73) (81) (91) (101) (112)

EBITDA 252 225 336 468 515 580 660 755

EBITDA margin 14.9% 14.4% 19.4% 22.7% 22.3% 23.0% 23.9% 25.0%

Net financial result (42) (19) (15) (12) (19) (14) (13) (12)

Pre-tax profit 148 137 249 382 416 475 546 632

% growth -8% 82% 53% 9% 14% 15% 16%

Taxation (36) (33) (60) (91) (100) (114) (131) (152)

Tax rate 24.5% 23.9% 24.1% 23.9% 24.0% 24.0% 24.0% 24.0%

Minorities 0 0 (3) (6) (7) (8) (9) (11)

Group net profit 112 104 186 284 309 353 405 469

% growth -7% 79% 53% 9% 14% 15% 16%

Basic EPS (EUR) 1.59 1.48 2.64 4.04 4.39 5.01 5.76 6.67

% growth -7% 79% 53% 9% 14% 15% 16%

Source: Company Data; Bryan, Garnier & Co ests.

Fig. 16: Balance Sheet

(EURm) 2008 2009 2010 2011 2012e 2013e 2014e 2015e

PPE 295 270 264 286 314 343 374 405

Intangible assets 105 101 127 141 143 146 149 153

Other LT assets 63 63 76 98 98 99 99 99

Total fixed assets 463 435 467 525 556 588 622 657

Cash and equivalents 25 114 295 200 208 263 336 433

Inventories 381 306 377 458 518 572 630 689

Trade receivables 201 140 133 175 208 222 238 257

Other ST assets 92 70 83 91 91 91 91 91

Total assets 1,162 1,065 1,355 1,449 1,581 1,736 1,918 2,127

Trade payables 124 150 188 225 252 275 301 329

Other ST liabilities 177 142 201 240 240 229 229 218

Total current liabilities 302 292 389 465 492 503 530 548

LT debt 589 494 514 355 355 355 355 355

Other LT liabilities 73 73 91 106 96 96 85 83

Shareholders' equity 199 205 361 523 638 782 947 1,142

Total liabilities and equity 1,162 1,065 1,355 1,449 1,581 1,736 1,918 2,127

Source: Company Data; Bryan, Garnier & Co ests.

Hugo Boss

14

Fig. 17: Cash Flow Statement

(EURm) 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Net income pre-minorities 112 104 189 291 316 361 415 480

D&A 61 69 71 73 81 91 101 112

Change in working capital (17) 184 (9) (74) (66) (46) (48) (49)

Other 9 (14) 57 12 0 0 0 0

Cash flow from operations 165 344 308 302 330 406 468 542

Capex (119) (48) (56) (108) (124) (135) (148) (162)

Net investments 2 4 (6) 0 0 0 0 0

Cash flow from investing (117) (44) (62) (108) (124) (135) (148) (162)

Dividends (445) (95) (67) (140) (199) (216) (247) (284)

Other financing 398 (116) (2) (149) 0 0 0 0

Cash flow from financing (47) (211) (68) (289) (199) (216) (247) (284)

FX (1) 1 3 1 0 0 0 0

Cash flow 0 89 181 (94) 8 55 73 97

Source: Company Data; Bryan, Garnier & Co ests.

Fig. 18: Sales estimates by region

(EURm) 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Europe 1,170 1,041 1,073 1,245 1,341 1,434 1,526 1,612

% growth -11% 3% 16% 8% 7% 6% 6%

Americas 307 312 381 455 552 618 695 774

% growth 2% 22% 19% 21% 12% 12% 11%

Asia-Pacific 162 165 230 309 361 406 478 564

% growth 2% 40% 34% 17% 13% 18% 18%

Royalties 47 44 45 49 57 62 67 71

% growth -7% 3% 9% 16% 9% 7% 6%

Total 1,686 1,562 1,729 2,059 2,311 2,521 2,765 3,021

% growth -7% 11% 19% 12% 9% 10% 9%

Source: Company Data; Bryan, Garnier & Co ests.

Price Chart and Rating History Hugo Boss

Ratings Date Ratings Price 19/04/2012 NEUTRAL EUR87

Target Price Date Target price 05/07/2012 EUR88 19/04/2012 EUR90

29/10/12

2010 2011 201210

20

30

40

50

60

70

80

90

BOSS (HUGO) (XET)

Source: Thomson Reuters Datastream

Hugo Boss

15

Bryan Garnier stock rating system For the purposes of this Report, the Bryan Garnier stock rating system is defined as follows: Stock rating

BUY Positive opinion for a stock where we expect a favourable performance in absolute terms over a period of 6 months from the publication of a recommendation. This opinion is based not only on the FV (the potential upside based on valuation), but also takes into account a number of elements including a SWOT analysis, positive momentum, technical aspects and the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

NEUTRAL Opinion recommending not to trade in a stock short-term, neither as a BUYER or a SELLER, due to a specific set of factors. This view is intended to be temporary. It may reflect different situations, but in particular those where a fair value shows no significant potential or where an upcoming binary event constitutes a high-risk that is difficult to quantify. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

SELL Negative opinion for a stock where we expect an unfavourable performance in absolute terms over a period of 6 months from the publication of a recommendation. This opinion is based not only on the FV (the potential downside based on valuation), but also takes into account a number of elements including a SWOT analysis, positive momentum, technical aspects and the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

Distribution of stock ratings

BUY ratings 45.8% NEUTRAL ratings 35.5% SELL ratings 18.7%

Research Disclosure Legend

1 Bryan Garnier shareholding in Issuer

Bryan Garnier & Co Limited or another company in its group (together, the “Bryan Garnier Group”) has a shareholding that, individually or combined, exceeds 5% of the paid up and issued share capital of a company that is the subject of this Report (the “Issuer”).

No

2 Issuer shareholding in Bryan Garnier

The Issuer has a shareholding that exceeds 5% of the paid up and issued share capital of one or more members of the Bryan Garnier Group.

No

3 Financial interest A member of the Bryan Garnier Group holds one or more financial interests in relation to the Issuer which are significant in relation to this report

No

4 Market maker or liquidity provider

A member of the Bryan Garnier Group is a market maker or liquidity provider in the securities of the Issuer or in any related derivatives.

No

5 Lead/co-lead manager In the past twelve months, a member of the Bryan Garnier Group has been lead manager or co-lead manager of one or more publicly disclosed offers of securities of the Issuer or in any related derivatives.

No

6 Investment banking agreement

A member of the Bryan Garnier Group is or has in the past twelve months been party to an agreement with the Issuer relating to the provision of investment banking services, or has in that period received payment or been promised payment in respect of such services.

No

7 Research agreement A member of the Bryan Garnier Group is party to an agreement with the Issuer relating to the production of this Report.

No

8 Analyst receipt or purchase of shares in Issuer

The investment analyst or another person involved in the preparation of this Report has received or purchased shares of the Issuer prior to a public offering of those shares.

No

9 Remuneration of analyst The remuneration of the investment analyst or other persons involved in the preparation of this Report is tied to investment banking transactions performed by the Bryan Garnier Group.

No

10 Corporate finance client In the past twelve months a member of the Bryan Garnier Group has been remunerated for providing corporate finance services to the issuer or may expect to receive or intend to seek remuneration for corporate finance services from the Issuer in the next six months.

No

11 Analyst has short position The investment analyst or another person involved in the preparation of this Report has a short position in the securities or derivatives of the Issuer.

No

12 Analyst has long position The investment analyst or another person involved in the preparation of this Report has a long position in the securities or derivatives of the Issuer.

No

13 Bryan Garnier executive is an officer

A partner, director, officer, employee or agent of the Bryan Garnier Group, or a member of such person’s household, is a partner, director, officer or an employee of, or adviser to, the Issuer or one of its parents or subsidiaries. The name of such person or persons is disclosed above.

No

14 Analyst disclosure The analyst hereby certifies that neither the views expressed in the research, nor the timing of the publication of the research has been influenced by any knowledge of clients positions and that the views expressed in the report accurately reflect his/her personal views about the investment and issuer to which the report relates and that no part of his/her remuneration was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Yes

15 Other disclosures Other specific disclosures: Report sent to Issuer to verify factual accuracy (with the recommendation/rating, price target/spread and summary of conclusions removed).

No

A copy of the Bryan Garnier & Co Limited conflicts policy in relation to the production of research is available at www.bryangarnier.com

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Important information This independent investment research report (the “Report”) was prepared by Bryan Garnier & Co Limited and is being distributed only to clients of Bryan Garnier & Co Limited (the “Firm”). Bryan Garnier & Co Limited is authorised and regulated by the Financial Services Authority (the “FSA”) and is a member of the London Stock Exchange. This Report is provided for information purposes only and does not constitute an offer, or a solicitation of an offer, to buy or sell relevant securities, including securities mentioned in this Report and options, warrants or rights to or interests in any such securities. This Report is for general circulation to clients of the Firm and as such is not, and should not be construed as, investment advice or a personal recommendation. No account is taken of the investment objectives, financial situation or particular needs of any person. The information and opinions contained in this Report have been compiled from and are based upon generally available information which the Firm believes to be reliable but the accuracy of which cannot be guaranteed. All components and estimates given are statements of the Firm, or an associated company’s, opinion only and no express representation or warranty is given or should be implied from such statements. All opinions expressed in this Report are subject to change without notice. To the fullest extent permitted by law neither the Firm nor any associated company accept any liability whatsoever for any direct or consequential loss arising from the use of this Report. Information may be available to the Firm and/or associated companies which are not reflected in this Report. The Firm or an associated company may have a consulting relationship with a company which is the subject of this Report. This Report may not be reproduced, distributed or published by you for any purpose except with the Firms’ prior written permission. The Firm reserves all rights in relation to this Report. Past performance information contained in this Report is not an indication of future performance. The information in this report has not been audited or verified by an independent party and should not be seen as an indication of returns which might be received by investors. Similarly, where projections, forecasts, targeted or illustrative returns or related statements or expressions of opinion are given (“Forward Looking Information”) they should not be regarded as a guarantee, prediction or definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors, in addition to the risk factors stated in this Report, could cause actual results to differ materially from those in any Forward Looking Information.

Disclosures specific to clients in the United Kingdom This Report has not been approved by Bryan Garnier & Co Limited for the purposes of section 21 of the Financial Services and Markets Act 2000 because it is being distributed in the United Kingdom only to persons who have been classified by Bryan Garnier & Co Limited as professional clients or eligible counterparties. Any recipient who is not such a person should return the Report to Bryan Garnier & Co Limited immediately and should not rely on it for any purposes whatsoever.

Notice to US investors This research report (the “Report”) was prepared by Bryan Garnier & Co. Ltd. for information purposes only. The Report is intended for distribution in the United States to “Major US Institutional Investors” as defined in SEC Rule 15a-6 and may not be furnished to any other person in the United States. Each Major US Institutional Investor which receives a copy of this Report by its acceptance hereof represents and agrees that it shall not distribute or provide this Report to any other person. Any US person that desires to effect transactions in any security discussed in this Report should call or write to our US affiliated broker, Bryan Garnier Securities, LLC. 750 Lexington Avenue, New York NY 10022. Telephone: 1-212-337-7000. This Report is based on information obtained from sources that Bryan Garnier & Co. Ltd. believes to be reliable and, to the best of its knowledge, contains no misleading, untrue or false statements but which it has not independently verified. Neither Bryan Garnier & Co. Ltd. and/or Bryan Garnier Securities LLC make no guarantee, representation or warranty as to its accuracy or completeness. Expressions of opinion herein are subject to change without notice. This Report is not an offer to buy or sell any security. Bryan Garnier Securities, LLC and/or its affiliate, Bryan Garnier & Co. Ltd. may own more than 1% of the securities of the company(ies) which is (are) the subject matter of this Report, may act as a market maker in the securities of the company(ies) discussed herein, may manage or co-manage a public offering of securities for the subject company(ies), may sell such securities to or buy them from customers on a principal basis and may also perform or seek to perform investment banking services for the company(ies).

Bryan Garnier Securities, LLC and/or Bryan Garnier & Co. Ltd. are unaware of any actual, material conflict of interest of the research analyst who prepared this Report and are also not aware that the research analyst knew or had reason to know of any actual, material conflict of interest at the time this Report is distributed or made available.