Weak sterling is not enough to boost Hugo Boss’ poor performance in Q3
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Business |ANALYSIS
Struggling luxury brand Hugo Boss profited from a weaker pound in the third quarter, although this good news wasn’t enough to offset the German retailer’s generalised decrease. The fashion retailer saw overall group’s sales fell by 3 percent, while European sales dropped 2 percent.
The UK and China were the most promising markets for Hugo Boss, which saw sales grow by 3 percent in the former and in the lowest single digit for the latter. In fact, the upmarket fashion chain said business was 'especially strong' in Britain and although it closed 20 loss-making stores in August, said strong local demand and tourism helped increase its sales, reported Reuters.
Sales in the group's overall business fell by 3 per cent in the third quarter while overall European sales dropped 2 percent.
On the upside, Hugo Boss said third quarter sales in China rose on a like-for-like basis. That broke the negative trend of previous quarters as volumes rose at a double-digit rate after the company slashed prices to bring them closer to European and U.S. levels.
Uptrend in China could be the remedy for months of free falling for the stock
In this regard, the CEO of the German fashion group said: "We are on an upward trend in China now. I'm satisfied at how quickly and comprehensively we adjusted our cost structures to the changing business conditions."
"We believe that Hugo Boss, under the new leadership of CEO Mark Langer and with a sensible strategic turnaround plan, can return to a solid revenue/earnings dynamics," said Citi analyst Thomas Chauvet, who rates the stock a ‘buy’.
Net profit fell 9 percent to 81 million euros (73 million pounds) on sales down 6 percent to 703 million, compared to analysts' average forecasts for 76 million and 706 million respectively.
Hugo Boss said extensive cost savings had helped limit the impact of falling sales on earnings, adding it now planned savings of 65 million euros for 2016 compared with a previous target of 50 million.
Those savings would come mostly from renegotiating store leases and cutting administrative costs and marketing, explained the company in a statement. That helped it reiterate a forecast for full-year currency adjusted sales to fall by up to 3 percent and for operating earnings before special items to fall by 17 to 23 percent.
Mark Langer, who was promoted to chief executive in May to revive the brand following a series of profit warnings, is planning to reduce costs by renegotiating rents and shutting stores, assuring in the call with analysts earlier this week that “All the measures we have taken to protect profitability in the current year are on plan or even ahead.”
Summary- Net profit fell 9 percent to 81 million euros, compared to market’s forecast of profits of 76 million euros
- Hugo Boss’ CEO:“All the measures we have taken to protect profitability in the current year are on plan or even ahead.”
Photo:Hugo Boss Web