Amid weak sales in the Americas and Hong Kong in its fiscal third quarter, Hugo Boss adjusted its outlook downward.
Instead of sales increase in the mid-single digits for 2019, the German men’s wear giant now expects a gain well below the 5 percent mark. Operating profit is expected somewhere between 330 million and 340 million euros. Last year’s operating profit was 347 million euros.
In the third quarter, sales were flat at 720 million euros after currency adjustments.
During a conference call, chief executive officer Mark Langer sounded an optimistic note. “I don’t want to play down the difficult situation in Hong Kong and the U.S., but I see Hugo Boss remaining on course,” he told reporters.
Although macroeconomic conditions remain difficult, he forecast better results for the fourth quarter thanks to Hugo Boss’ own retail sales as well as more “cost management discipline” in areas like administration and logistics, as well as fewer one-off costs.
The company just reopened its Paris store as well as new flagship in its hometown of Metzingen in southern Germany, for example. The Champs-Élysées store had been closed for six months for renovations and the Metzingen store, which only opened in late September, had been one of the company’s single, largest investments of the past two years. Business was going well in both sites, Langer said, and could impact positively on full-year results.
“Rather than open new stores, we are trying to improve productivity and presentation at existing ones,” the executive explained. “In the last quarter we want to bring the new store concept to big, important ones like Chicago and San Francisco, too.”
While some territories saw an increase — with Europe and Asia-Pacific notching up a 2 percent gain in currency adjusted sales — sales in the Americas slipped by 8 percent.
“We know there is no easy or fast solution in North America. We have to do our homework, and under difficult conditions,” Langer said, referring to ongoing U.S.-China trade tensions and a fall in tourism. “It is too early to tell when we will return to growth and profit there.”
Analysts did not share Langer’s optimism. “Mid-term targets already appear out of reach,” Piral Dadhania of RBC Europe wrote in a research report. “Boss needs to deliver higher and more consistent revenue growth.”
While sales in Asia-Pacific were positive, currency-adjusted sales fell 1 percent in China, compared to the previous year. Hugo Boss has put a particular focus on this market, recently staging a pre-fall runway show in Shanghai and sponsoring an art prize there — the Hugo Boss Asia Art Award. The company blamed unrest in Hong Kong for the slip, with Langer noting that the city makes up about a quarter of Hugo Boss sales in Greater China. Political unrest in Hong Kong has seen stores closed on many weekends since August and shopper numbers have fallen drastically. That situation seems unlikely to change in the short term, Langer cautioned, and inventories originally destined for Hong Kong were now being shipped to other Asian destinations.
In Europe, where Hugo Boss does most of its business, sales growth of 5 percent in Britain contrasted with a 5 percent decrease in sales at home in Germany.
Online sales grew 36 percent. Digital improvements are a key pillar of Langer’s strategy and the brand plans to advance online concessions in Europe and further afield in the next quarter.
The executive is also striving to more clearly differentiate the two main brands: Boss is the businesswear label and makes up most of the company’s sales, while Hugo stands for casualwear. In the third quarter, Boss sales were flat at 614 million, while Hugo’s sales climbed 7 percent to 105 million euros.
But Langer wasn’t worried: “We are fundamentally satisfied with how casualwear and businesswear is developing,” he said, pointing out that various initiatives like the brand’s new made-to-measure offerings had been very successful in Asia, alongside projects like the traceable, washable suit and the sale of suiting separates.
It was true that the Boss brand had seen a fall in businesswear sales in North America but, Langer said, “We consider the market there to coexist [with casualwear].” In this region, suits are being worn without a tie, or with a roll neck, or combined with different items, he explained. “And we are working aggressively to win back share in that sector.”
The company reported 13 percent decrease in operating profit, or EBIT, equivalent to 80 million euros. The company blamed unexpectedly slow sales combined with higher operating expenses.