Hugo Boss RTW Spring 2019

Hugo Boss AG’s net profit for first-quarter 2019 declined 31 percent, due to an increase in operating expenses and a challenging U.S. market, but the brand confirmed its guidance for the full year.

The German apparel group’s net profit in the three-month period ended March 31 came to 31 million euros.

The Metzingen-based company reported Thursday that operating profits were down in the quarter by 23 percent to 54 million euros, impacted by investments in digital and higher expenses linked to reorganization measures. Marketing expenses also increased in the period.

But at a press conference regarding the results, chief executive officer Mark Langer was non-plussed. “If you look at what we spent on marketing in 2018, you will see that it was under-proportionate,” Langer said. The company simply spent more of the annual marketing budget in the first three months of 2019. “But this should all equal out later in the year,” he explained.

“We have started slowly into this year, but I’m not unhappy with this quarter,” he said. “We have made progress and we are maintaining the tempo.”

Langer discussed further reasons for the first-quarter decline, placing particular blame on certain aspects of a tough U.S. market, including the new tax payment on leases, a robust dollar and increasingly cautious American consumers.

“This development is expected to be offset in the course of the remainder of the year,” the company said in a statement, adding the U.S. dollar’s appreciation against the euro dampened earnings, too.

In the period, Hugo Boss’ sales grew 2 percent to 664 million euros. On a currency-adjusted basis, group sales were up 1 percent.

By geographic zone, Hugo Boss’ sales in the Asia-Pacific region climbed 7 percent to 107 million euros. In mainland China, the company posted double-digit gains in comp-store terms.

In Europe, group sales advanced 2 percent to 424 million euros, while in the U.K. double-digit retail sales growth was reported on a currency-adjusted basis, whereas sales remained stable in Germany.

Hugo Boss’ revenues softened in the Americas by 2 percent to 115 million euros, due to the challenging U.S. market and a high quarterly comparable.

In constant-currency terms, Hugo Boss’ online sales gained 26 percent, thanks to double-digit growth at its store and the expansion of the company’s concession model in the digital space.

“Sales in the wholesale business decreased, as expected,” Hugo Boss said. “This development was mainly due to delivery shifts compared to the prior year.”

Conversely, Hugo Boss’ retail sales on a comp-store basis were up 4 percent.

“The ongoing momentum of our strategic growth market China and in the important online business shows that our strategy is taking effect,” Langer said in a statement. “At the same time, the U.S. market proved to be weaker than expected. Moreover, investments in the digitization of our business model and the organizational structure weighed on our operating results in the first quarter.”

Hugo Boss has previously revealed a strong pivot to digital — this includes automating factories in Turkey, instituting more digital design processes and setting up online showrooms. As Langer told WWD, he sees online sales as the most important of all these, a project that he expects to continue to pay back investment in it. In the last quarter of 2018, online sales grew 37 percent and over the year, totaled more than 100 million euros for the first time; Langer said the company also sees major potential for online sales in the U.S.

In terms of where the company will see further returns on its digital drive, Langer said “other than the online business, I would also point to significantly reduced development times [for production] and the resulting reductions in costs.”

In a statement, Langer said he was “very confident that we will achieve our targets for the full year and beyond.”

The group expects that for 2019 on a currency-adjusted basis it will grow earnings before interest and taxes at a high-single-digit percentage rate and sales by a midsingle-digit percentage rate, driven mainly by Boss’ own retail business, whose comp-store sales growth should gain by a midsingle-digit percentage rate.

“In addition, the group expects the intensification of partnerships with online retailers in the concession model and the renovation of strategically important Boss stores over the course of the year to significantly drive growth,” the company said.

Boss further foresees a “substantial acceleration” in earnings development through the rest of 2019, due to positive effects from recent reorganization measures and currency effects, among other phenomena.

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