BERLIN — After a difficult year of realignment and transition, Hugo Boss is eyeing a return to stability and growth in 2017.
Last year saw the challenged German group taking steps to clean up the brand’s American business and adjust prices in Asia, as well as reorganize its portfolio into the Boss and Hugo brands, actively refocus its marketing efforts on its core men’s premium business, improve its digital performance and adapt its distribution to more closely meet customer needs.
The implementation of these strategic steps, Boss said, “will first have a positive impact on earnings in 2017,” with the full effects supporting the group’s financial results from 2018 onward.
In final 2016 figures released today, the German company reported net income fell 39 percent to 193.6 million euros, or $214.3 million, and operating profit was down 41 percent to 263.5 million euros, or $291.7 million. Dollar figures are converted at average exchange for the period to which they refer.
Earnings before interest, taxes, depreciation and amortization after special items declined by 17 percent to 493 million euros, or $545.7 million, which was at the lower end of the group’s forecast range of a 17 percent to 23 percent decline.
Group sales fell 4 percent to 2.69 billion euros, or $2.98 billion, though adjusted for currency effects, sales slipped 2 percent. Sales were particularly pressured in the U.S., where Boss significantly limited its wholesale business, withdrawing from formats which did not correspond to the desired brand positioning.
In China, where sales were negatively impacted by the group’s downward realignment of prices to reflect European and American levels, Boss said business had turned around by the end of the year. Chinese sales decreased 6 percent in currency-adjusted terms in 2016, but the fourth quarter saw sales in mainland China jump almost 20 percent on a like-for-like basis.
Sales in the group’s own retail business slipped 1 percent, but in currency-adjusted terms were up 1 percent to 1.66 billion euros, or $1.84 billion. Comp store sales, adjusted for currency effects, fell by 6 percent, but Boss noted all regions saw a noted improvement in the fourth quarter. At year-end, there were 442 freestanding Boss stores, compared to 430 in 2015.
The group’s wholesale business was down 11 percent (9 percent in local currencies), primarily reflecting the brand’s discontinuation of business with discount-driven retailers.
For the year ahead, the outlook is more upbeat for what Boss termed “a year of stabilization.” Sales in 2017 are expected to remain largely stable on a currency-adjusted basis, with operating profit developing more or less in line with sales. Boss is forecasting EBITDA before special items will develop within a corridor of minus 3 percent to plus 3 percent compared to 2016, supported by strict cost management, positive effects from renegotiated rental leases, and the closure of loss-making stores.
The group’s net income and earnings per share are expected to grow by a double-digit percentage rate, though largely due to the absence of non-recurring expenses in the prior year, the group explained.
Within its key markets, Boss said sales in Europe should remain largely stable, increase slightly in Asia, aided by growth in China, with a slight decline in the Americas and the U.S. forecast due to ongoing wholesale distribution changes. Own retail is expected to grow by up to mid-single digits, while wholesale is expected to fall by a low- to mid-single-digit percentage. On the licensing front, Boss is eyeing solid gains fueled by its fragrance business.
The performance of the Boss share has improved over the last year, boosted in the last few weeks by the news that Groupe Bruxelles Lambert had taken a stake in the Metzingen, Germany-based group. As for the proposed dividend for 2016, shareholders will have to be satisfied with 2.60 euros per share, compared to 3.62 euros in 2015. Boss noted the 2016 dividend corresponds to a payout ratio of 93 percent of the consolidated net income attributable to shareholders of the parent company, compared to 78 percent in 2015.