Hugo Boss May Clear Debt by 2013 on Growth
Stock Chart for Hugo Boss AG (BOS)
Hugo Boss AG (BOS3), the German luxury clothing maker, may be able to eliminate net debt as soon as next year as it increases sales in Asia and avoids acquisitions, Chief Financial Officer Mark Langer said.
The company, controlled by buyout firm Permira Advisers, may be in “cash positive territory” by 2013 or 2014 and won’t need any major refinancing, Langer said in an interview at the company’s headquarters in Metzingen, Germany. Hugo Boss has cut borrowings by about 75 percent since 2008. Net debt totaled 247 million euros ($328 million) as of Sept. 30 and was “slightly” below 150 million euros at the end of 2011, Langer said.
The planned reduction of debt won’t affect the clothier’s investment plans or dividend policy, the executive said. Hugo Boss plans to spend 60 million euros to 80 million euros a year opening 50 new stores on three continents and renovating existing ones. The company forecasts revenue of 3 billion euros by 2015, up from 2.06 billion euros in 2011.
“To build this franchise into a 3 billion-euro business is purely and only driven by aggressively pursuing growth opportunities that exist under the Hugo Boss brand,” Langer said, adding that the company doesn’t need acquisitions.
The main thrust for growth will be Asia, and more specifically China, according to the executive. Hugo Boss plans to open as many as 20 stores a year in China and expects sales in Asia to represent more than 20 percent of group sales by 2015, compared with 13 percent at the end of 2010.
“We’re quite confident that this trend of up to 20 new openings on an annual basis will continue in China for the near future,” Langer said. The company owned 179 stores in the Asia- Pacific region as of the end of September.
Hugo Boss, which yesterday reported a 26 percent gain in fourth-quarter operating profit, is confident about the outlook for its business in Europe, Langer said.
“We don’t foresee any plans for store closures in Europe,” he said. Some European retailers are shuttering stores as the region’s debt crisis restricts consumer spending. Langer said he’s happy with sales in Spain and Italy.
Hugo Boss forecasts revenue earnings before interest, tax, depreciation and amortization of 3 billion euros by 2015 as it opens more shops and increases sales in Asia and the U.S.
Langer said he will increase free cash flow through “profitable growth” and “tight capital management.”
The clothier expects retailing to overtake wholesaling as its biggest source of revenue, Langer said. The retail unit will represent about 55 percent of sales by 2015 as about 50 stores a year are opened in Asia, Europe and the U.S., he said.
Permira (BOS3), which has controlled Hugo Boss since 2007, views the company “as a long-term investment,” Langer said.
The buyout firm said in November it will sell 4.5 million shares, or about 6.4 percent of the stock, to institutional shareholders, reducing its holding to 66 percent. Permira said at the time that it wasn’t the start of an exit process.
Hugo Boss preferred shares rose 1.3 percent to 78.29 euros as of 11:02 a.m. in Frankfurt, extending their advance this year to 38 percent. Hugo Boss is the steepest gainer in the Bloomberg European Fashion Index in 2012.
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