BERLIN — Onetime special items, primarily related to further store closures, sent Hugo Boss net income plummeting 84 percent in the second quarter. The drop exceeded the most negative analyst expectations, which most recently forecast a 50 percent drop in net income.
The troubled Metzingen-based group said in addition to the announced reduction in its Chinese store portfolio, around 20 weak-performing stores worldwide will be closed over the next 18 months. Special items amounting to 57 million euros, or $64.4 million, hit group net income, which fell to 11 million euros, or $12.4 million, in the quarter, from 71 million euros, or $78.8 million, a year earlier.
Dollar figures are converted at average exchange for the period to which they refer.
Operative earnings (earnings before interest, taxes, depreciation and amortization before special items) fell 13 percent to 108 million euros, or $122 million, with Boss performing better than the market had predicted. Boss said operative earnings were pressured by sales, which fell a nominal 4 percent to 622 million euros, or $702.4 million. On a currency-adjusted basis, sales dropped 1 percent. This, too, was ahead of recent analyst predictions, which called for a 5 to 6 percent decline.
Boss sales in Europe gained 7 percent on a currency-adjusted basis, with Great Britain booking double-digit gains, while weak tourism negatively affected French and Benelux sales. Sales in the U.S. slumped 21 percent, reflecting not only the difficult market environment, but also scaled-back wholesale distribution of the Boss core brand in the company’s effort to mitigate brand damage from promotional activity. Latin America posted double-digit gains and Canada made solid increases.
In Asia, overall regional sales for the quarter were down 6 percent on a currency-adjusted basis. In China, where Boss has instituted a new price policy as well as store closures, sales in local currencies dropped 16 percent, though Boss noted the weakness occurred primarily in Hong Kong and Macau. In mainland China, price adjustments and stepped-up digital communication led to a double-digit increase in sales volumes, the group said.
Boss’ own retail sales (including outlets and online stores) were flat on a currency-adjusted basis, but comp-store sales were down 7 percent. In the first half of the year, Boss added 13 doors, for a network of 443 freestanding stores.
Boss lowered its sales guidance, now calling for currency-adjusted sales to remain stable or decline by up to 3 percent for the full year, compared to a low single-digit increase. The group said it expects sales to decrease in the Americas and Asia, with continued growth forecast in Europe, its largest market.
Own-retail sales are expected to grow, supported by network expansion and takeovers, but comp-store sales are expected to be down, though no more than the 7 percent reported in the first half of the year. Wholesale is expected to decline by up to 10 percent, compared to the last forecast of a mid- to high-single-digit decline.
Boss continues to forecast stable gross profit margin (66 percent in 2015), but now expects operating profit (EBITDA before special items) to contract between 17 and 23 percent. The earlier forecast called for a low double-digit decline.
“To return to profitable growth again in the medium term, we have made decisions that are painful to begin with. These include the closure of stores and a structural change of our distribution in the U.S. wholesale channel,” said Boss chief executive officer Mark Langer. But the group said the additional closure of 20 freestanding stores, which it noted diluted the group’s EBITDA margin by about 60 basis points in 2015, should have “a positive impact on profits, especially in 2017 and beyond.”