Boss RTW Spring 2017

BERLIN — Strong premium positioning, men’s suits with sharper prices, better mobile commerce: Hugo Boss partially lifted the veil on its future strategy in tandem with third-quarter results that saw the profit picture improving for the embattled German company.

The Metzingen-based group posted a 9 percent decline in net income to 80.6 million euros, or $90 million, although this compares with an 84 percent plunge in the second quarter of 2016 and a 23 percent fall in third quarter 2015 net income. Earnings before interest, taxes, depreciation and amortization before special items fell 14 percent in the quarter to 144.5 million euros, or $143.4 million.

Dollar figures are converted at average exchange for the period to which they refer.

Negative currency effects pushed sales down 6 percent to 703 million euros, or $785 million. On a currency adjusted basis, sales slipped 3 percent.

The earnings performance was slightly better than the most recent analyst forecasts, but sales had been pegged for a 5 percent slide.

On a currency adjusted basis, sales in Europe dropped 2 percent, impacted by adverse market conditions, while the group’s domestic business fell 10 percent in the quarter.

During a conference call Wednesday, chief executive officer Mark Langer suggested the increase of the entry-level price for a Boss men’s suit in Germany to 500 euros from 400 euros initially had a “dampening effect” on German sales.

Sales in the Americas were down 9 percent, primarily due to the narrowing of wholesale distribution of the Boss core brand in the U.S. to curtail discounting. U.S. sales, which contribute about a quarter of group revenues, fell 14 percent in the three-month period.

In Asia-Pacific, sales fell 2 percent, with China posting a 4 percent currency-adjusted decline. But Boss noted Chinese like-for-like sales in China increased in the period, “breaking the negative trend of previous quarters. Higher volumes more than offset” the group’s realignment of prices in China to reflect European and American levels.

Boss’ own-retail business grew 2 percent on a currency-adjusted basis but on a comp-store basis, sales were down 6 percent. Online business fell 15 percent in the quarter, prior to the group’s relaunch of its web site in October.

Langer said Boss had made “very good technical advances” in its online operation this year, but acknowledged the group had underestimated the shift in consumer ordering behavior from desktop to mobile devices and had recently introduced a mobile app.

Boss’ wholesale business was down 11 percent, reflecting the U.S. clean-up, subdued global demand and a shift of some fall deliveries in Europe into the second quarter.

Despite higher-than-expected cost savings, Boss maintained its most recent full-year financial forecast. This calls for 2016 group sales to remain stable or fall by up to 3 percent. Own retail comp-store sales are expected to be negative, with the group’s wholesale business forecast to contract by up to 10 percent.

EBITDA before special items is forecast to decline by between 17 and 23 percent. Boss said cost savings for the year have been higher than originally planned, primarily due to renegotiated leases in its own retail business, strict cost management and a streamlining of the brand’s marketing activities. Boss now expects savings of 65 million euros to be reached, compared to its original cost-savings budget of 50 million euros.

Langer, who assumed his position in May, has been keeping a relatively low profile, and Boss said the group is to provide an update of long-term strategy on Nov. 16. This will include the brand’s market positioning, digitization process and optimization of distribution. “We are going back to our roots in men’s wear in the higher premium segment,” he said Wednesday, “but we are not giving up on our women’s wear business.” He would not reiterate further at this time.

Langer’s first interview in German financial daily Handelsblatt last week saw him step away from previous management’s luxury push and called for a return to the brand’s premium positioning and core men’s wear focus.

Nonetheless, as Equinet analyst Mark Josefson commented, “as far as the stock market is concerned, this year was written off. We need to know more about strategy, planned store openings, closures, the women’s business, the drop off in America, but there should be more information closer to [Boss] capital market days,” which kick off with Boss Investor Day in London on Nov. 16.

In Citibank’s view, the third-quarter “results were satisfactory.” Given the EBITDA beat — mainly reflecting cost management, additional cost savings, but difficult trading conditions in key markets including Germany, France, the U.S. and Hong Kong — and reconfirmed full-year guidance, Citi said it expects full-year 2016 EBITDA consensus of minus 20 percent year-on-year to remain unchanged. Looking ahead, however, Citi analysts noted full year 2017 guidance of a 4 percent gain in EBITDA “may be too high in a like-for-like environment. Shares are down 27 percent year to date (versus a gain in the sector of 6 percent)….Yet Hugo Boss is the best-performing luxury stock over the past month.”

As for Langer, he said that “2016 will not be a year of growth,” and summed up, “But the company is healthy. And we will be back to growth as soon as possible.”

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