BERLIN – Hugo Boss picked up the pace of earnings and sales growth in the second quarter, once again driven by the German apparel group’s retail business as well the brand’s strength in the European market.
For the period ending June 30, Boss reported a 13 percent gain in net income, which reached 70.7 million euros, or $78.2 million.
Dollar figures are converted at average exchange for the period to which they refer.
Operating earnings (earnings before interest and taxes) were up 14 percent in the period, reaching 94.4 million euros, or $104.4 million.
Bolstered by positive currency effects, sales grew 16 percent to 647.1 million euros, or $715.6 million. On a currency-adjusted basis, sales were up 7 percent, beating analysts’ expectations.
Boss said Europe strongly contributed to the quarter’s sales performance, posting currency-adjusted growth of 7 percent, while the U.K. achieved double-digit gains. Sales in the Americas were up 5 percent in local currencies, but the U.S. booked only 1 percent growth. Double-digit growth in Australia and Japan pushed Asian sales ahead 5 percent in currency-adjusted terms, and currency-adjusted sales in China rose 6 percent in the period.
The ongoing motor behind the Metzingen-based group’s growth, own retail (including outlets and online stores) posted a 22 percent rise in reported terms. On a currency-adjusted basis, sales were up 12 percent in the quarter, with currency-adjusted retail comp sales set at 6 percent. Online sales leapt 34 percent in the period, reflecting the successful relaunch of the hugoboss.com Web site last year. In a conference call, chief financial officer Mark Langer noted online basket size had increased and that consumers were now buying complete outfits versus just items on the site.
In the second quarter, wholesale slipped 3 percent on a currency-adjusted basis, reflecting further takeovers of former franchise partners.
Langer also pointed to the ongoing strategic upgrade of the Boss core brand, with the “successful trading up of customers to higher-priced, higher-value products in own retail.” He said own retail would increasingly be focused on the Boss core brand, gradually upgrading the offering with emphasis on Boss tailored and Boss made-to-measure (in men’s wear). As part of this strategy, multibrand areas will in future be primarily served by Boss Green, Boss Orange and Hugo, with this change already in place in Boss shop-in-shops in Germany, Austria, and Switzerland.
The group’s men’s wear sales were up 7 percent in local currencies in the quarter, and women’s wear rose 5 percent, while the Boss core brand women’s wear collection designed by artistic director Jason Wu advanced by 13 percent. More space at own retail is being devoted to shoes and accessories, which currently generate only 10 percent of women’s sales “but are very important in driving brand identity and desirability,” Langer said.
Boss management reconfirmed its sales and profit targets for the full year. Chief executive officer Claus-Dietrich Lahrs said he expects the second quarter’s favorable trend to continue in the second half, even though he acknowledged conditions in the U.S. and China “remain difficult.”
As previously reported, Boss expects earnings before interest, taxes, depreciation and amortization before special items to increase between 5 and 7 percent in reported terms, and is projecting midsingle-digit gains in currency-adjusted sales. On the down side, Boss is projecting a lower gross margin than initially expected. Moreover, analysts noted continued cost inflation due to ongoing retail expansion, stepped-up marketing expenditures and limited FX benefits from a weak euro, given sourcing costs (33 percent) in U.S. dollars as well as an appreciable administrative cost base in U.S. dollars and Swiss francs.
The group is again projecting above-average growth in its own retail business, with a midsingle-digit increase expected for comp retail sales. Around 65 stores are slated to open this year, of which 47 opened in the first half, to reach 1,088 doors. Boss said further takeovers will also expand the own retail channel, though this will in turn result in a slight decline in wholesale revenue.