PARIS — Hugo Boss AG achieved its full-year guidance for 2018, and anticipates the company’s operating profit will grow faster than sales this year. The German apparel group also expects strong momentum in its activities online and in Asia during 2019.
The Metzingen-based company reported on Thursday that its consolidated net income in the 12-month period rose 2 percent to 236 million euros. Earnings before interest, taxes, depreciation and amortization before special items were about on the same level as in 2017, standing at 489 million euros, while operating profits were up 3 percent to 346.8 million euros.
As reported, sales for the year gained 4 percent on a constant-currency basis to 2.8 billion euros, powered by the group’s own retail business, particularly online.
“We’ve increased our pace of growth as planned,” said Mark Langer, chief executive officer of Hugo Boss, addressing financial analysts during a call on Thursday. “Even more encouraging is that this growth was broad-based, no matter whether we look at the performance by region or by sales channel.
“Above all, our own retail business, in particular our online business, enjoyed dynamic growth in 2018,” he continued.
Hugo Boss registered strong double-digit growth in its own online activity, generating sales of more than 100 million euros for the first time. After intensifying its relationship with Zalando, Hugo Boss has set a goal of entering into further partnerships in the online space in coming years, starting in 2019, with a focus on the Asia-Pacific region and Europe, Langer said.
The group also made major progress in its “most important distribution channel,” the brick-and-mortar retail business, he added. There are 26 Boss stores worldwide today, with 12 opened last year.
“[We] see the potential for adding additional openings in 2019 and beyond,” Langer said.
On a currency-adjusted basis, sales grew 5 percent from the company’s retail business and from its wholesale activity. The group’s online revenues rose 41 percent, with strong double-digit gains across all regions. Hugo Boss’ licenses business’ sales declined 4 percent.
“Increases in the license income for watches and eyewear were more than offset by declining licenses income from fragrances,” said Yves Müller, Hugo Boss chief financial officer.
“The latter mainly reflects the anniversary effect of the change in license partners toward the end of 2016, which yielded double-digit increases in 2017,” he continued. “That said, we are clearly not satisfied with the current performance of our fragrance business, and have raised this topic vis-à-vis Coty, our licensing partner.”
In currency-adjusted terms, sales of the Boss brand rose 6 percent, driven by high-single-digit growth in business- and casualwear. Hugo’s revenues, meanwhile, dipped 4 percent, negatively impacted by distribution changes aimed at sharpening the brand’s positioning, Müller said.
On a geographic and currency-adjusted basis, group sales rose 4 percent in Europe and in the Americas, and 7 percent in the Asia-Pacific region.
“While sales growth accelerated in all regions, it was particularly in the important Asia-Pacific region where the positive trend from previous years continued,” Langer said. “Despite some uncertainties with regards to the strength of the underlying Chinese economy, our Chinese business continued to record over-proportionate growth in 2018.”
The full-year results were in line with financial analysts’ expectations.
“We have a positive stance on the stock, as believe the underlying restructuring effort is moving in the right direction, and the company should finally show operating leverage in fiscal year 2019,” Melania Grippo, luxury goods analyst at Exane BNP Paribas, wrote in a note.
Looking ahead, Hugo Boss set goals for 2019. “We expect group sales to grow at a midsingle-digit percentage rate on a currency-adjusted basis, thus outgrowing the global economy, as well as the relevant market segment in 2019,” Müller said.
“All regions are forecasted to contribute toward sales growth, with the strongest increase expected to come from Asia-Pacific,” he added. “The region is projected to grow at a mid- to high-single-digit percentage rate on a currency-adjusted basis, led by significant growth in the Chinese market.”
Sales in Europe and the Americas are projected to increase by a low- to midsingle-digit percentage rate.
“From a channel perspective, growth will, once again, be driven by our own retail business, where sales are expected to increase at a mid- to high-single-digit percentage rate on a currency-adjusted basis,” said Müller, adding the forecast is based on the assumption that comp-store sales will grow at a midsingle-digit percentage rate on a currency-adjusted basis.
“Our online business will continue to contribute overproportionately to retail growth,” he added.
Also for 2019, the company’s gross margin is expected to increase up to 50 basis points, buoyed by a positive channel mix and improvements in markdown management.
EBIT is expected to increase at a high-single-digit percentage rate, stronger than the top line. “This development will be driven by the anticipated sales increase, the improvement in gross profit as well as tight operating cost management,” Müller said. “In line with EBIT, net income should also increase at a high-single-digit percentage rate.”
The company expects an increase in free cash flow, as well.
Hugo Boss is in the early stages of its 2022 strategic business plan, presented in late 2018, which includes the company intending to increase currency-adjusted sales by an average of 5 percent to 7 percent per year, and growing its operating margin to 15 percent.
The strategy is built on two pillars: personalization and speed.