Hugo Boss blames difficult global market conditions for poor Q1

In the first quarter of 2016, Hugo Boss said, the difficult global market environment, company-specific challenges and investments in future growth put pressure on sales and earnings. However, the company has reiterated its outlook for the full year, and is expecting an improved trend in sales and earnings, particularly in the second half of the year.

“We've launched a lot of initiatives in the past few weeks. The determination and energy that the whole organisation has been showing in meeting our challenges is impressive", said Mark Langer, CFO at Hugo Boss, adding, “The focus in the short term is on stabilizing our US business as well as on increasing our cost efficiency and free cash flow. We are working hard on maximizing the consistency of our global brand and price positioning and on digitalising our business model, for sustainable growth in the next few years.”

Sales suffer by declines in the Americas and Asia/Pacific

Sales at the Hugo Boss Group declined by 4 percent in Q1 to 643 million euros (741 million dollars). Sales were down by 3 percent on a currency-adjusted basis. Sales in Europe fell by 2 percent or 1 percent adjusting for currency effects. While sales fell in France and the Benelux in particular, business in the United Kingdom grew by 4 percent in local currency.

In the Americas, sales in local currency were 8 percent lower than in the prior-year period. Sales in the US market declined by 16 percent adjusted for currency effects, due to declines in the wholesale business as well as in retail. Double-digit growth rates in Canada and South America only partially compensated for the decline in the US. Sales in the Asia/Pacific region were down 5 percent on the prior year adjusting for currency effects. In China, sales fell by 11 percent year-on-year excluding currency effects. Hong Kong and Macau were particularly weak.

Retail sales stable, wholesale declines 9 percent

Sales in the Group's own retail business including outlets and online retailing were stable in reported terms in Q1, with growth of 1percent adjusting for currency effects. However, retail comparable store sales excluding exchange rate effects declined by 6 percent, due to double-digit decreases in the Americas and Asia-Pacific regions. The number of freestanding stores operated by the Group increased to 438 in the first quarter, primarily due to new openings in Europe.

Sales in the wholesale business were down by 9 percent on the prior year in local currencies. In addition to the muted global demand from retail partners, the company said, this was mainly due to the takeover of selling space previously operated by wholesale partners, which resulted in a shift in sales from wholesale to the Group's own retail business.

Menswear sales fell slightly by 2 percent in local currencies in Q1, while womenswear sales were down by 4 percent.

Gross profit margin declines

The Group's gross profit margin of 64.1percent was 140 basis points down on the prior year figure of 65.5 percent. The positive effects stemming from the larger share of sales contributed by the Group's own retail business, in which Hugo Boss generates a higher gross profit margin than in the wholesale channel, were offset by negative effects from the write-down on inventories in Asia, increased discounting, particularly in the US market, and the price adjustments in Asia.

EBITDA before special items was 93 million euros (107 million dollars), 29 percent below the prior-year figure. Accordingly, the adjusted EBITDA margin declined by 520 basis points to 14.5 percent and EBIT fell by 48 percent to 54 million euros (62 million dollars).

Retains previously announced outlook for 2016

The management of the Hugo Boss Group has reconfirmed its outlook for the current year. It expects a low single-digit currency-adjusted percentage increase in sales compared to the prior year. The Group expects its own retail business to be the growth driver. It anticipates new store openings, full-year effects from stores opened in the prior year as well as takeovers to make a mid to high single-digit percentage contribution to channel growth.

On the other hand, a mid to high single-digit percentage decline in sales is expected for the wholesale business. The reasons for this include changes to the distribution strategy in the USA as well as the effects of acquisitions. The gross profit margin is expected to be unchanged compared to the prior year. The Group’s EBITDA before special items is expected to decline by a low double-digit percentage rate in 2016.