BERLIN — Losses mounted at Hugo Boss in the first quarter of 2016, when net income plunged 49 percent and operating earnings fell 48 percent, due to numerous factors including increased discounting and decreasing sales in the U.S. and rising operating expenses.
Group sales were also down, by 4 percent, in the period ending March 31.
Although analysts were expecting a troubled quarter, given the group’s latest profit warning in February and chief operating officer Claus-Dietrich Lahrs and chief brand officer Christoph Auhagen’s subsequent resignations, the quarterly performance was nonetheless below forecasts.
Net income reached 38.5 million euros, or $42.4 million, in the quarter compared with 98.2 million euros, or $110.8 million, in the same prior-year period. Earnings before interest and taxes reached 53.7 million euros, or $59.6 million, versus 102.8 million euros, or $114.4 million, in 2015, while EBITDA before special items fell 29 percent to 93 million euros, or $103.3 million.
Dollar figures are converted at average exchange for the periods to which they refer.
Boss cited a catalog of pressures on earnings: a declining gross profit margin, which fell 140 basis points to 64.1 percent; increased discounting and decreasing sales in the U.S.; negative effects from write-downs of inventories in China as well as price adjustments in that market; rising operating expenses related to the global expansion of own retail plus the digitization of the business model; special items connected to the recent management board changes, as well as significantly higher depreciation and amortization expenses.
Group sales reached 642.6 million euros, or $713.4 million, down 3 percent on a currency-adjusted basis. Sales in Europe, which had motored growth in 2015, slipped 2 percent. In the Americas, double-digit sales gains in Canada and South America couldn’t compensate for a 16 percent slump in the U.S., which Boss said reflected declines in both wholesale and own retail businesses. Sales in China fell 11 percent, though Boss noted price adjustments and stepped-up digital communication led to a 10 percent increase in volume in Mainland China.
Hugo Boss’ own retail sales, which includes outlets and online, managed a 1 percent gain in currency-adjusted terms, while retail comp store sales excluding exchange rate effects fell 6 percent. The group’s wholesale business was down 9 percent. Men’s wear sales fell 2 percent in local currencies, while women’s wear sales were down 4 percent.
Looking ahead, Boss reconfirmed its 2016 forecast, which calls for a low single-digit increase in currency-adjusted sales, driven by own retail. The wholesale channel, on the other hand, is expected to book a high to midsingle-digit percentage decline.
Gross profit margin is expected to remain at 2015 levels of 66 percent, supported by improvements in Boss distribution in the U.S., reduction of discounts in the next few quarters, further optimization of inventory levels and the growing share of sales generated by the group’s own retail business. However, Boss is forecasting EBITDA before special items will decline by a low double-digit percentage rate.