German marquee brand Hugo Boss reported better, albeit not remarkable, results in the second quarter of the year.
“With us, there are no surprises here, neither upward or downward, and in these difficult market conditions we see this as a success,” chief financial officer Yves Müller told journalists during a press conference this morning.
Hugo Boss reported a 2 percent rise in currency-adjusted sales to 675 million euros and boasted that better efficiencies had seen operating profit, or earnings before interests and taxes, go up 3 percent to 76 million euros. That was slightly lower than analysts’ predictions.
The company expects to achieve the year’s guidance although final results will likely lie at the lower end of forecasts. Müller said guidance was not being adjusted, rather it was being substantiated. Hugo Boss now expects turnover to grow between 4 and 5 percent until the end of the year and EBIT to grow between 7 and 8 percent, the executive said.
Half-year results indicate that chief executive officer Mark Langer’s program for change is working, Müller said, trumpeting progress in online sales, the Asian market, a streamlining the brand’s offerings to two main lines, Hugo and Boss, and improved efficiencies in production and supply. “In those areas we have made significant progress,” Müller noted. “Step by step we are moving ahead with our strategic priorities.”
“Concrete signs of recovery have been plentiful at Hugo Boss over the last two years,” Antoine Belge, global co-head of consumer and retail research at HSBC, wrote last month.
“Boss’ transformation plan should deliver multiyear margin gains, on which we remain positive,” noted RBC Europe analyst, Piral Dadhania, while also pointing out that tough trading conditions would continue to weigh on the brand.
There were some big differences in results between territories: While sales in Asia-Pacific gained 8 percent on the back of booming business in China, they fell in the U.S. (minus 3 percent) and Germany (minus 2 percent over the first half year).
The company acknowledged challenges in the tough U.S. and stagnating German markets. Business in America has not been as good as we had expected, Müller conceded. “It’s no consolation that our competitors in the U.S. are also having a hard time. It just shows how difficult the American market is right now. For one thing, it’s very discount intensive. We could only partially avoid this trend.”
Müller says the company decided that discounting cannot be a sustainable solution: “That’s why Hugo Boss has not participated in these discount wars,” he said. The brand now expects mild improvements in the second half of the year in the U.S. Sales in the U.S. fell by 8 percent in the first quarter.
Hugo Boss also expects better results in Germany in the second half and Müller placed high hopes on a new flagship store which should open by the end of the year in the firm’s home base of Metzingen, as well as personnel changes. A new sales manager for the important and still-profitable German-speaking market was appointed in June.
Hugo Boss’ online sales are also healthy, rising 16 percent this quarter. That does represent a decrease from the first quarter, when online sales saw currency-adjusted growth of 26 percent. In 2018, online sales grew 41 percent altogether and Müller told WWD that to achieve the firm’s objective of growing online from 100 million euros to 400 million by 2022, annual growth of around 40 percent was needed. Questioned as to whether the brand’s carefully revamped web presence has hit a wall, Müller said that he expects improvements in the next six months.
For example, he noted, Hugo Boss started online summer sales later to establish the brand’s own channel as one that offers full price, upper-premium stock. Those sales will be reflected in the next results. By mid-August, Hugo Boss will also have opened up its own web site for four more countries — Denmark, Sweden, Finland and Ireland — and is also building on its partnership with Zalando.
Following the release of the second-quarter results, J.P. Morgan classified Hugo Boss shares as neutral based on the brand’s caution about the U.S. market, even as analyst Melanie Flouquet wrote that the results were as expected. In early trading after the report, Hugo Boss shares lost around 2 percent in value, although five of seven analysts still classified Hugo Boss shares as buy: the other two classified them as neutral.