Hugo Boss AG reported operating profit that missed analyst estimates as a difficult market in China and a weakening U.S. wholesale business offset retail-sales growth at the German luxury clothing maker.
Third-quarter earnings before interest, taxes, depreciation, amortization and one-time items rose 5 percent to 173.1 million euros ($237.3 million), Metzingen-based Hugo Boss said in a statement today. The average estimate of 11 analysts in a Bloomberg survey was for revenue of 174.1 million euros.
French competitor Kering SA said this month that sales at its Gucci luxury-goods unit in China fell in the third quarter. Prada SpA, the Italian owner of the Miu Miu and Church’s luxury brands, reported first-half profit that missed estimates last month as demand for premium goods cooled in China.
The business environment remains “highly challenging” in mainland China, the world’s second-largest economy, and Hugo Boss doesn’t expect any clear improvement yet, Chief Financial Officer Mark Langer told analysts on a conference call today.
The retailer only added two stores to its retail network in Asia in the first nine months of the year, compared to 101 in Europe and 49 in the Americas.
“Hugo Boss has systematically addressed the difficult market environment” worldwide, Chief Executive Officer Claus Dietrich Lahrs said in the statement. “Demand in our own stores picked up noticeably in the third quarter compared to the first half year. We are therefore anticipating strong growth in sales and earnings in the fourth quarter.”
Third-quarter sales rose 1.8 percent to 657.9 million euros, with growth held back because of negative currency effects, Hugo Boss said. The average estimate of 15 analysts was revenue 674.9 million euros.
Wholesale revenue dropped 8 percent, adjusted for exchange-rate shifts, while retail sales on the same basis gained 23 percent as Hugo Boss has opened 183 new own stores globally in the first nine months of 2013, including a flagship store in Moscow in September. The gross margin, or proportion of sales left after subtracting production costs, widened to 63.5 percent in the quarter from 60.1 percent.
“The gross margin improvement was positive,” Anna Patrice, an analyst at Berenberg in London, said by phone.
Hugo Boss rose 1.4 percent to 95.55 euros as of 4:40 p.m. in Frankfurt. The stock has gained 20 percent this year compared to a 34 percent increase in the MDAX Index of German mid-size companies.
The retailer adjusted its full-year sales forecast, saying revenue excluding currency effects will rise 6 percent to 8 percent this year, with operating profit increasing at a similar rate. The company previously expected revenue and adjusted Ebitda to rise by a high single-digit percentage. Third-quarter currency-adjusted sales in the Americas failed to rise because of a weaker U.S. wholesale business, Hugo Boss said.
“The U.S. results were disappointing,” Berenberg’s Patrice said. “The situation in China remains difficult as outlined by Hugo Boss but also its competitors.”
The retailer is targeting 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.
Hugo Boss is controlled by Permira Advisers LLP. Permira, based in London, acquired a majority holding in Valentino Fashion Group SpA in 2007, 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.