Hugo Boss Resort 2016

BERLIN — Negative exchange rates pushed net income down 23 percent to 88.5 million euros, or $98.4 million, at Hugo Boss in the third quarter, with operating earnings also slumping 13 percent to 132.6 million euros, or $147.5 million, for the period ending Sept. 30.

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

As previously reported, Boss downwardly revised its full-year forecast last month citing weakening conditions in Asia and America. In line with preliminary figures released at that time, Boss sales for the quarter came in at 744.1 million euros, or 827.6 million, which represents a 4 percent gain in euro terms. Adjusted for currency effects, sales slipped 1 percent in the period.

Europe, which contributes over 60 percent of group sales, posted a 4 percent gain on a currency-adjusted basis, with sales in Great Britain booking double-digit growth. In the Americas, however, currency-adjusted sales were down 7 percent in the third quarter, with U.S. sales down 10 percent. Asia-Pacific sales fell 12 percent, with China experiencing a double-digit decline due to what Boss termed “the sharp deterioration in industry conditions.”

The group’s own retail business grew sales 6 percent in currency-adjusted terms, with comp sales stable in the quarter. Online sales pushed ahead 20 percent, but the Boss wholesale business was down 7 percent (currency-adjusted) with takeovers of business from retail partners in Asia particularly impacting performance.

Boss reported men’s sales were down 1 percent in local currencies, while women’s wear sales rose 1 percent, and sales of Boss women’s wear by Jason Wu generated 6 percent sales growth.

Higher operating expenses related to the ongoing upgrading and expansion of the Boss own retail network, investments in improving retail performance and stepped-up marketing expenses cut into operative earnings. Earnings before interest, taxes, depreciation and amortization before special items fell 8 percent to 168 million euros, or $186.9 million, shrinking the adjusted operating margin by 280 basis points to 22.6 percent.

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For the first nine months of 2015, Boss net income fell 9 percent to 234.7 million euros, or $261.8 million, EBIT slid 4 percent to 329.8 million euros, or $367.9 million, while EBITDA before special items was flat at 422.9 million euros, or $471.7 million. Group sales rose 9 percent (3 percent on a currency-adjusted basis) to 2.06 billion euros, or $2.3 billion.

Boss cited online sales as a key driver of the group’s own retail growth in the nine-month period, which was up 16 percent (8 percent currency-adjusted) to 1.2 billion euros, or $1.34 billion. The Boss-owned store network added 64 doors over the first nine months, for a total of 1,105 stores. The wholesale channel was flat in euro terms at 815.9 million euros, or $910 million, and down 4 percent in local currencies, reflecting the takeovers of spaces operated by wholesale partners and a weaker replenishment business in the third quarter.

The revised forecast for 2015, as reported, now calls for currency-adjusted sales growth of between 3 to 5 percent, with EBITDA before special items advancing at the same pace for the year. Boss said the guidance takes into account the significant slowdown in China and more muted performance in the U.S., but also assumes that own retail sales will remain stable or increase over last year. The group’s own retail sales in October support this more positive outlook, Boss said, and further emphasized the fourth quarter is the most important in the year.

The disappointing third-quarter performance and the group’s revised annual forecast have sent Boss shares down 8 percent year-to-date and 5 percent since the profit warning in October, but analysts continue to take a positive view of the stock’s future potential.

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