Hugo Boss AG (BOSS), the German maker of $1,000 suits, reported second-quarter earnings that met analysts’ estimates as the company opened more of its own stores to showcase its goods and rely less on outside retailers.
Earnings before interest, tax, depreciation and amortization and excluding special items increased 8 percent to 110 million euros ($147 million), Metzingen-based Boss said in a statement, compared with analysts’ 109.6 million-euro average estimate. Revenue rose 5 percent to 559 million euros, below the average 569.6 million-euro estimate of analysts surveyed by Bloomberg. The shares rose as much as 4.3 percent.
“We will grow even faster in the second half of the year,” Chief Executive Officer Claus Dietrich Lahrs said in the statement. “Consistently strong growth in Europe and our upturn in the Americas” helped boost second-quarter results.
Lahrs is expanding the number of company-owned stores, hired designer Jason Wu and opened a new distribution center in Germany. He’s also exerting more control over the way Boss’s clothes are displayed in high-end stores including Saks Fifth Avenue Inc. in New York, Printemps in Paris and London’s Selfridges & Co. The company said today it plans to add about 50 stores, excluding takeovers.
It’s also putting more emphasis on women’s wear; one of its dresses landed on the cover of German Vogue this month.
Yet business is struggling in China, where an official clampdown on excessive spending by government officials hurt sales from gift-giving business, Chief Financial Officer Mark Langer said on a webcast with analysts.
“Boss ticks key boxes that make an investment attractive,” Andreas Inderst, an analyst at Exane BNP Paribas, said in a July 14 note to clients. He has an outperform recommendation on the stock. “This includes benefits from a better brand image, improved presentation at points of sale” and investments in technology and distribution.
The clothing maker reiterated its full-year forecast, predicting high single-digit percentage increases in sales excluding currency shifts and adjusted Ebitda. The company forecast an improvement in wholesale revenue in the second half compared to the first.
“Hugo Boss remains one of the best earnings growth stories in the luxury sector this year, underpinned by a strong balance sheet,” Citigroup analyst Thomas Chauvet said in a note to clients today. He recommends buying the shares.
Hugo Boss said currency-adjusted wholesale revenue declined 6 percent in the second quarter, citing a challenging market environment and the takeover of selling spaces previously managed by wholesale partners. Hugo Boss added that delivery shifts to the third quarter also contributed to the drop. The company’s retail sales rose 17 percent excluding currency fluctuations.
Analysts on average expect Ebitda to increase 9 percent this year. The growth rate has decelerated from 40 percent in 2011.
“In terms of earnings, the momentum has got to speed up,” Volker Bosse, an analyst at Baader Bank, said in a July 24 note to clients.
Shares of Hugo Boss, which is majority owned by private-equity firm Permira Advisers LLP, have increased sixfold in the past five years, while Germany’s DAX Index almost doubled.
The company has almost tripled its store count in the past four years, according to Bloomberg Intelligence data.
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