Hugo Boss to shut 20 stores to boost profitability

Hugo Boss has said that sales and earnings developed one present in the second quarter than in the first three months of the year. In the first half of the year, Hugo Boss reported a 2 percent sales decline in local currencies. In the reporting currency, this translates to a decrease of 4 percent to 1,265 million euros (1,409 million dollars). To return to profitability, in addition to the previously announced changes in the Chinese store portfolio, the company has decided to shut around 20 freestanding stores globally in the coming 18 months.

“In an anything but easy market environment, we have performed well over the past few months,” says Mark Langer, CEO of Hugo Boss, adding, “To return to profitable growth again in the medium term, we have made decisions that are painful to begin with. These include the closure of stores and a structural change of our distribution in the US wholesale channel.”

Sales decline across geographies in the first half

With a currency-adjusted 3 percent increase in sales, Europe performed well. The growth came primarily from Great Britain and smaller markets such as Scandinavia and Italy. The decline in the tourism business put pressure on France and other European markets. In the Americas, sales in local currencies fell by 11 percent.

In a difficult market environment, the US market was weaker than the region as a whole, reporting a decline of 19 percent. In Asia, sales were down 6 percent on the prior year after adjustment for currency effects. In China, the price adjustments introduced at the beginning of the year led to a 20 percent decline in average sales prices. However, the impact was largely offset by higher volumes. Overall, sales in China decreased by 14 percent in currency-adjusted terms due to weakness in Hong Kong and Macau.

By distribution channel, currency-adjusted sales rose by 1 percent in the Group’s own retail business in the first half of the year. Comp store sales were down 7 percent on the prior year after adjustment for currency effects. The Group’s own retail store network was expanded by a net 13 locations in the first six months, growing to 443 freestanding stores. The Group’s wholesale sales declined by 6 percent in local currencies.

Menswear sales were down by 2 percent on the comparable prior-year period in currency-adjusted terms. Womenswear sales remained stable in local currencies. Boss womenswear continued to generate above-average growth.

The decision to close stores and changes in management led to one-off expenses amounting to 65 million euros (72.4 million dollars). The consolidated net income attributable to equity holders fell by 66 percent to 50 million euros (55.7 million dollars).

Second quarter sales down 4 percent in euro terms

In the second quarter, Hugo Boss sales were down by one percent in currency-adjusted terms. In euro terms, the Group recorded a 4 percent drop to 622 million euros (692.8 million dollars) due to negative currency effects. With a currency-adjusted 7 percent increase in sales, Europe performed very well. In Great Britain, currency-adjusted sales rose by a double-digit rate. In France and Benelux, however, losses were incurred due to weak tourism trends.

In the Americas, sales fell by 14 percent in local currencies. The US market was down 21 percent. The decline in the United States, Hugo Boss said, not only reflects the difficult market environment but is also the result of the limited distribution of the Boss core brand in the wholesale channel. The Company is deliberately sacrificing sales in order to avoid brand damage from promotional activity. Double-digit growth rates in Latin America and increases in Canada only partially made up for these negative effects.

Sales in Asia were down 6 percent on the prior year, adjusted for currency effects. While Australia and smaller markets in the region, such as Singapore and Korea, developed well, the Chinese market reported a 16 percent decline in sales in local currencies, with weakness primarily in Hong Kong and Macau.

Currency-adjusted sales in the Group's own retail business including outlets and online stores remained stable in the second quarter. Retail comp store sales fell by 8 percent excluding currency effects. The wholesale business saw a currency-adjusted decline of 1 percent due to muted customer demand and takeovers of selling space previously operated by partners.

The gross profit margin rose by 110 basis points to 67.6 percent in the second quarter. However, due to the decline in sales, EBITDA before special items dropped by 13 percent to 108 million euros (120.3 million dollars). Special items amounting to 57 million euros (63.4 million dollars) were mainly related to the decision to close around 20 freestanding retail stores globally over the next 18 months. This reduced the Group net income by 84 percent to 11 million euros (12.2 million dollars).

Hugo Boss adjusts sales forecast

The company has adjusted its sales forecast based on its performance in the first half of the year and the planned expansion of measures to improve distribution in the United States. The Managing Board now expects currency-adjusted sales to either remain stable or decline by up to 3 percent in the full year. Sales are projected to decrease in the Americas and Asia. On the other hand, Europe, the Group’s largest region, should continue to grow.

Sales in the Group’s own retail business, the company said, will be supported by the expansion of the store network and takeovers, while comp store sales are expected to be down. However, the full year decline should not exceed the level recorded in the first half of the year, when comp store sales fell by 7 percent. Wholesale sales are expected to contract by up to 10 percent.

The Company now expects operating profit to decline between 17 percent and 23 percent in the full year. Hugo Boss said, the expansion of the Group’s own retail business will slow down.

Photo:Hugo boss