Photographer: Jerome Favre/Bloomberg

Hugo Boss Quickens Expansion Plan as Europe Boosts Revenue

German fashion label Hugo Boss AG said it will open more of its own stores this year after a bounceback in European shopping and more control over its shop network boosted second-quarter sales.

Hugo Boss said Tuesday it will open 65 new sites, up from a previous forecast of 50. Sales rose 16 percent to 647 million euros ($708 million) in the quarter, fueled by freer consumer spending in Europe. That topped the 628 million-euro average estimate of analysts surveyed by Bloomberg.

“The improvement came exclusively from Europe, largely driven by local demand,” said Thomas Chauvet, a Citigroup analyst, in a note to clients. “Second-quarter results were solid and reassuring following a weak start to the year.”

Chief Executive Claus-Dietrich Lahrs is spending more on new stores in a bid for more control over merchandise and how products are sold. The seller of 650-euro three-piece suits and 450-euro green leather clutch purses raised its budget for expansion to as much as 240 million euros for this year, 9 percent higher than forecast in May. Still, clearing out inventory at third-party stores is weighing on profitability this year.

The stock rose 0.2 percent to 110.35 euros as of 10:28 a.m. in Frankfurt. The shares have gained 8 percent this year, compared with a 21 percent gain in the Bloomberg European Fashion index of nine stocks.

Narrower Margins

The gross margin will widen less than previously expected this year, Hugo Boss said. It narrowed by 0.2 percentage points in the second quarter to 66.5 percent. The adjusted operating margin narrowed by 0.6 percentage point, hurt by expansion costs.

“Hugo Boss is sustaining huge operating expense cost inflation,” said Cedric Rossi, an analyst at Bryan Garnier & Co., who recommends buying the shares.

Hugo Boss raised its forecast for full-year retail same-store sales to a “mid-single digit” increase from low single digits previously. Yet “conditions in the U.S.A. and China remain difficult,” said CEO Lahrs. Currency-adjusted sales in Europe rose 7 percent compared with 1 percent growth in the U.S. and a 6 percent rise in China.

Before it's here, it's on the Bloomberg Terminal.