Hugo Boss scaling down on expansion and investment plans

New York - Hugo Boss had a tough last year. In their 2015 figures released today, they reported a net income drop of 5 percent to 354.7 million dollars. Consolidated net income attributable to shareholders was down 4 percent.

They did see a rise in group operating profit of 1 percent to 695.6 million dollars, however this fell short of the company's forecast of a 3 to 5 percent gain. The company cited costs related to expansion — In 2015, they opened 72 new doors and refurbished several other stores — as part of the reason for the dent in their profits.

Higher discounts, particularly in the U.S. market, put pressure on the gross profit margin, which was 10 basis points below the 2014 level at 66 percent.

Some good news for the brand was their business in Europe, which had been particularly sluggish due to a struggling European economy, saw an increase in group sales of 9 percent to 3.12 billion dollars. Total 2015 sales rose 3 percent, while Europe sales grew 6 percent for the year, but currency adjusted sales in the Americas and Asia-Pacific declined 1 percent and 3 percent.

Hugo Boss scales back on expansion and investment plans after a less than stellar 2015 figures report

The group's retail network generated a 15 percent sales gain, which includes their online business which surged 20 percent. Currency-adjusted retail comp sales were also up 2 percent for the year. At the wholesale level, currency-adjusted sales slipped 3 percent.

China put a dent in Hugo Boss's plans for expected growth in 2015. The luxury goods sector there has been very sluggish due to the volatile markets. Falling sales in China coupled with heavy discounts in the U.S. caused the company to adjust their expected earnings report twice in the past six months.

Last month, Boss said they expected a double-digit decline in operating profit because of weaker than expected retail sales in China and the U.S. They also abandoned their proposed plan to achieve a double-digit operating margin of 25 percent by 2020. The company's ceo Claus-Dietrich Lars also resigned unexpectedly, and a replacement has yet to be named.

Boss announced today that they expect sales to increase by a single digit percentage fueled by their retail business. Whole sales are expected to drop by a single digit percentage.

In the wake of heavy discounts in China and the lagging Chinese market, the company will be limiting their wholesale distribution to shop-in-shops, and they have reached an agreement with Macy's to manage all eight Boss shop-in-shops for the future.

As for China, Boss has positioned their prices there closer to the European level, and an upswing in demand was reported. However, they will still be closing 20 Chinese stores.

Investments, particularly those tied to their own retail business, will be scaled back to 219.5 million dollars compared to 244.3 million dollars.