BERLIN — Europe’s long, hot summer and a challenging market environment negatively impacted third-quarter earnings performance at Hugo Boss. The German apparel group posted an 18 percent drop in net income and a 12 percent decline in earnings before interest, taxes, depreciation and amortization before special items, while sales were flat for the period ending Sept. 30.
Nonetheless, anticipating “significant growth in sales and earnings in the fourth quarter,” Boss confirmed its full-year sales and earnings guidance. Regarding gross profit margin, which declined 240 basis points in the third quarter, Boss is now forecasting a decline of between 50 and 100 basis points for the full year.
Third-quarter net income slipped to 66 million euros compared to 80 million euros the previous year, with EBITDA before special items reaching 126 million euros, down from 143 million euros for the prior-year period. While operating expenses were down slightly, this could only partially offset the EBITDA decline.
The gross profit margin was down to 62.5 percent compared to 64.9 percent the year previously, which Boss attributed to negative effects from inventory valuation, higher markdowns in own retail, continued investments in product quality and negative currency effects. Currency effects had an overall negative effect on earnings development in the quarter, the group noted.
Group sales for the period were flat at 710 million euros, representing a 1 percent increase in currency-adjusted terms. Sales in Europe dropped 3 percent to 462 million euros, while the Americas generated a 5 percent gain to 142 million euros and sales in Asia-Pacific rose 6 percent to 87 million euros. License revenues were down 2 percent to 19 million euros.
By channel, the group’s own retail business was up 1 percent to 415 million euros, with sales up 3 percent on a comp store and currency-adjusted basis. While Boss did not break out numbers, the company said its online business surged 38 percent in the quarter. Delivery shifts had a somewhat negative effect on wholesale sales, which declined 2 percent during the period.
Reflecting ongoing distribution shifts, which involved a transfer of selling space from Hugo to Boss for certain product categories in wholesale and own retail, as well as a reduced presence of Hugo in the outlet channel, sales of the younger Hugo brand were down 11 percent to 98 million euros for the quarter “as expected.” Boss brand sales were up 2 percent, reaching 612 million euros. By gender, the group’s women’s wear sales were down 8 percent to 70 million, which the company primarily linked to reduced retail space of Boss brand women’s wear in its own retail business.
The third quarter also saw several milestones in the fulfillment of the group’s strategic initiatives. To strengthen digital sales, Boss stepped up its partnership with e-tail giant Zalando in early October via the Zalando Partner Program. Under the partnership, Boss independently manages the presentation and sales of Boss Businesswear, which is now available on Zalando for the first time.
Also of strategic note: the joint Boss men’s and women’s spring 2019 fashion show in New York, which was boosted by a simultaneous interactive social media campaign. In addition, the further roll-out of Hugo stores in key European cities saw openings in London and Paris in the July-September period.
Boss is looking forward to a solid end-of-year performance. According to chief executive officer Mark Langer, “We’re expecting a strong acceleration in sales and earnings in the fourth quarter. We are therefore very confident that we will achieve our full-year targets.” These call for a sales increase at a low- to midsingle-digit percentage rate, and EBITDA before special items to develop within a range of minus 2 percent to plus 2 percent over the prior year.
“We’re consistently pursuing our strategic initiatives and I’m convinced that we will return to sustainable profitable growth in the coming year,” Langer said.
Boss will present its mid-term financial outlook as well as releasing further information on the progress of the group’s strategic initiatives as part of an investor day in London on Nov. 15.