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Despite sales decline in Q3, Hugo Boss expects upbeat growth ahead

Business |REPORT

Despite sales decline in Q3, Hugo Boss expects upbeat growth ahead

By Prachi Singh

3 Nov 2015

After the first nine months of the year, sales at Hugo Boss are up on the previous year, although momentum slowed in the third quarter. Whereas Europe continued to post solid sales increases, Asia and America were both down. As announced in October, the company expects a currency-adjusted increase in sales of between 3 percent and 5 percent for the year as a whole and operating profit (EBITDA before special items) to be up by between 3 percent and 5 percent.

“2015 will be a year of solid growth for Hugo Boss,” says Claus-Dietrich Lahrs, CEO of Hugo Boss, adding, “Our business in Europe is growing. However, this was not sufficient last quarter to offset the effects of the more muted performance in China and the United States. Trends deteriorated in both markets. That said, we assume that sales and earnings will improve in the final quarter.”

Europe continues to grow in the third quarter

The Group's currency-adjusted sales decreased by 1 percent in the third quarter, however, in euro terms they were up 4 percent, rising to 744 million euros (819.6 million dollars) due to positive currency effects. European business remained encouraging, with currency-adjusted revenues rising by 4 percent. Sales in Great Britain rose at a double-digit rate, while the pace of growth in many other countries remained solid. The robust European business is also being underpinned by strong demand on the part of tourists from Asia and the Americas.

By contrast, revenues in the Americas declined by 7 percent in local currencies, on the back of a 10 percent decline in sales in the US market, where wholesale business as well as the Group’s own retail business were subdued. Revenues in Asia were down 12 percent on the prior year in local currencies. A further increase in sales in Australia and Japan failed to offset the double-digit decline in China caused by the sharp deterioration in industry conditions.

Currency-adjusted sales in the Group's own retail business (including outlets and online stores) rose by 6 percent. Online business expanded by 20 percent on a currency-adjusted basis, but the wholesale business was burdened by shifts in sales arising from takeovers in Asia in particular. Business with partners in the United States contracted as well. Overall, sales in this distribution channel were 7 percent below the prior-year level on a currency-adjusted basis.

Menswear sales were down 1 percent in local currencies, while womenswear recorded growth of 1 percent. Sales of BOSS womenswear created by Artistic Director Jason Wu grew by 6 percent.

While the gross profit margin benefited from the above-average growth of the Group's own retail business, it was strained by higher rebates and widened by 40 basis points to 64.5 percent. EBITDA before special items fell by 8 percent and the adjusted operating margin shrank by 280 basis points to 22.6 percent. Net income dropped by 23 percent, which the company said were due to negative exchange rate effects, which impacted the financial result.

Nine-months’ sales up in Europe, down in Asia, America

The Hugo Boss Group recorded sales growth of 3 percent in local currencies in the first nine months of 2015. As a result of positive currency effects, this corresponds to an increase of 9 percent. With a currency-adjusted 5 percent increase in sales, Europe was the fastest-growing region. Sales expanded in nearly all countries, with the United Kingdom performing particularly well. The two other main markets in this region, Germany and France, posted sales growth.

Sales in the Americas dropped by 1 percent in local currencies due to developments in the third quarter. In Asia, sales were down 2 percent on the prior year after adjustment for currency effects. The solid growth in Australia and Japan as well as the positive effects arising from the takeover of franchises failed to fully offset the effects of general spending restraint in China. Sales in China dropped by 6 percent after currency adjustment in the first nine months.

Sales by distribution channel were uneven in the first nine months. The Group's own retail business (including outlets and online stores) recorded an 8 percent increase in sales before adjustment for currency effects. At 22 percent, the online channel displayed the vigorous growth. Currency-adjusted comp store sales were up 3 percent on the prior year. The Group’s own retail store network saw a net expansion of 64 in the first nine months, growing to 1,105. The Group’s wholesale sales declined by 4 percent in local currencies.

Menswear sales grew by 3 percent in local currencies and womenswear was up 3 percent across all brands and lines as well. At 10 percent, womenswear under the BOSS core brand achieved double-digit sales growth.

Sales and earnings growth expected in Q4

The management of Hugo Boss expects currency-adjusted sales to grow by between 3 percent and 5 percent for the year as a whole. Similarly, operating profit (EBITDA before special items) is expected to rise by between 3 percent and 5 percent on a reported basis. The outlook is based on the assumption that fourth quarter own retail comp store sales will remain stable or increase compared with the prior year. Hugo Boss plans to open around 65 new stores this year and focus mainly on the expansion and renovation of the Group’s own retail network.