Hugo Boss Second-Quarter Profit Beats Estimates on Stores

Hugo Boss AG (BOSS) reported earnings that beat estimates after the German luxury-clothing maker opened more stores and tightened inventory handling to protect pricing.

Earnings before interest, taxes, depreciation, amortization and one-time items rose 31 percent to 101.8 million euros ($135 million), Metzingen-based Hugo Boss said in a statement today. The average estimate of 11 analysts in a Bloomberg survey was 98.1 million euros.

“We’ve become more proficient in the use of our inventory,” Chief Financial Officer Mark Langer said in a telephone interview from the company’s headquarters. “It allows us to be even stricter on markdown policies in our retail operations.”

Retail sales will be the “growth engine” this year, Chief Executive Officer Claus Dietrich Lahrs said in March. The company added 61 directly operated stores in the first half. Hugo Boss has moved toward the higher-end segment after merging its Boss Selection range with the core Boss brand a year ago, and has worked on improving its womenswear by appointing Jason Wu as creative director for the arm in June.

The value of inventory was down 9 percent to 446 million euros at the end of June, compared with a year earlier, Hugo Boss said today. Adjusted for currency effects, inventory fell by 7 percent.

Shares Gain

Hugo Boss shares rose 0.2 percent to 87.18 euros in Frankfurt today, valuing the company at 6.14 billion euros.

The gross margin, the percentage of sales left after subtracting production costs, widened to 65.8 percent from 62.4 percent, partly as a result of lower inventory valuation and retail sales growth, Hugo Boss said. The average estimate was 63 percent.

“The gross margin improvement is extremely positive,” said Anna Patrice, an analyst at Berenberg Bank in London. “Inventories are clean so we should expect fewer promotions going forward, which will be positive for the margin.”

Second-quarter sales jumped to 531.7 million euros from 485.3 million euros. The average estimate of 14 analysts was 539.3 million euros. Wholesale revenue rose 6 percent on a currency-adjusted basis because of the new collection cycle, while retail sales increased 15 percent.

Global Footprint

“Hugo Boss remains a quality growth stock that offers a global footprint” and solid revenue-earnings dynamics, Thomas Chauvet, an analyst at Citigroup Inc. in London, said in a note today. “We see long-term opportunities in retail expansion in Asia and the U.S.,” product diversification and sales-productivity improvement. He recommends that clients buy the stock.

Sales in Asia rose 7 percent on a currency-neutral basis, while climbing 14 percent in Europe and 9 percent in the Americas. Lahrs said in March that the proportion of sales Hugo Boss gets from Europe may fall to about half by 2015 from 60 percent last year as the suitmaker expands in the U.S. and Asia.

“We continue to expect a challenging retail environment in Europe,” Langer said today. “In terms of trends, I would expect a similar pattern in the second half to what we’ve seen in the first half. However, we remain confident on retail opportunities.”

Fashion Events

China will perform better in the second half of the year, he said, citing benefits of fashion events and the merger of Boss Selection and the core Boss brand.

Ebitda before special items and sales on a currency-adjusted basis will rise at a high single-digit rate this year, Hugo Boss reiterated today.

Hugo Boss aims for revenue of 3 billion euros and Ebitda of 750 million euros in 2015, with the retail business representing at least 55 percent of revenue by then.

Permira Advisers LLP, based in London, acquired in 2007 a majority holding in Valentino Fashion Group SpA, Hugo Boss’s parent company at the time. The private-equity firm owns about 56 percent of Hugo Boss after selling a 10 percent stake in an accelerated bookbuilding in May.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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