Hugo Boss reported sales slipped 17 percent in the first quarter of this year and warned that the drop could be as big as 50 percent for the second quarter amid widespread shutdowns.
“There’s no point in being overly dramatic. But there’s also no reason to sugarcoat things,” chief executive officer Mark Langer told a conference call on Tuesday. “We would be very pleased to come out of the second quarter with similar results. But our operative minus will be even higher… Based on what we know today, we are reckoning with revenues at least halved between April and June.”
Langer went on to explain that this was due to the amount of business Hugo Boss did in certain territories.
In the Americas and in Europe, where lockdowns only hit in early March, currency-adjusted group sales fell 17 percent and 14 percent respectively. But as Langer pointed out, 85 percent of all Hugo Boss business is done in these territories, and that means worse numbers to come.
Group sales in the first three months of 2020 hit 555 million euros compared to 664 million euros during the same quarter last year.
The steepest sales decline — 31 percent — came in the Asia-Pacific region and was largely caused by closures due to the coronavirus in China early on in the quarter. Hugo Boss’ sales in its own Asia-Pacific stores slumped 33 percent to 67 million euros, compared to 99 million the previous year.
However, as retail reopens in the region, sales over the past month were down only 15 to 20 percent less than last April. Although foot traffic remains significantly lower and many stores remain on reduced opening hours, the shoppers who are coming out are keen to spend, Langer noted. The company said it expects that gradual improvement to continue.
More than three-quarters of Hugo Boss’ points of sale around the world remain closed, the company said on Tuesday, adding that it would not be able to provide guidance for the rest of the year.
Hugo Boss has 431 of its own retail stores around the world and in the all-important home market of Europe, the company made 200 million euros, a fall of 10 percent compared to 221 million euros during the same quarter last year. In the Americas, sales dropped 17 percent to 66 million euros, compared to 78 million in the first quarter of 2019.
Wholesale, which makes up 37 percent of Hugo Boss’ business, also suffered, dropping 18 percent to 206 million euros from 250 million euros a year earlier.
As has been the case for most other large brands, online sales — through the brand’s own web site and through concessions on other platforms –—saw an uptick, rising 39 percent to 38 million euros. Although the company’s strategy of the past few years has put focus on digital, online still only makes up around a tenth of Hugo Boss’ overall sales.
Both of the brand’s labels — the formal Boss and the more casual Hugo — saw a decrease but Hugo did not suffer as badly, with currency-adjusted sales falling 12 percent to 82 million euros. The pricier Boss line dropped 18 percent to 473 million euros.
While less formalwear had been sold, Langer pushed back against the suggestion that the suit was obsolete. “There is no fundamental change in consumers’ attitudes. [Formalwear] will come back after this crisis,” the ceo argued. For now though, Hugo Boss’ best-sellers were for WFH life, he said. “Sportswear, jerseys, polo shirts, leisure pants and sneakers. After all, why would you need a new pair of brogues if you’re not going out for lunch with your boss,” Langer quipped.
EBITDA fell by 45 percent. In the first quarter of 2020, it was 79 million euros compared to 142 million euros in the first three months of 2019. The company posted a net loss of 18 million euros. In 2019, the company netted 37 million euros.
The falls were broadly in line with forecasts. Hugo Boss’ first quarter was not quite as bad as expected, JPMorgan analyst Melanie Flouquet wrote in a first assessment. But risks remain, especially for the next quarter, she said. Goldman Sachs’ Louise Singlehurst agreed, adding that the lack of traveling luxury consumers would also be an ongoing problem for Hugo Boss.
The company said that it was taking various measures to ensure financial stability and would not be applying for German government-backed credit.
Langer went into some detail how the company planned to ensure at least 600 million euros in liquidity: That included postponing non-critical investments such as renovating existing stores or opening new ones, as well as curtailing marketing campaigns. Inventories would have to be adjusted, which would save around 200 million euros. Hugo Boss also has approximately 3,000 staff in Germany on what is known as “kurzarbeit,” or short-time work, until the end of May, where wages are subsidized by the German government. Top management has volunteered to take a 40 percent pay cut for April and May.
No redundancies are planned at the moment, but they may have to be considered should the business not recover as well as hoped, said Langer, who is to leave his job in September.