Hugo Boss Closes Stores in China in Cost-Cutting Effort

  • Shares rise 5.3% as fashion retailer maintains dividend
  • German company taking more control over its brand in U.S.

Hugo Boss AG, the embattled German fashion label, said it would fight discounting in the U.S. and close stores in China to protect profitability amid lackluster sales in those markets.

The retailer, whose CEO resigned last month after a series of forecast cuts and a plummeting share price, said it’s paring investments by at least 9 percent, closing 20 stores in China and taking control over concessions inside U.S. department store Macy’s Inc. The shares rose as much as 5.3 percent in early Frankfurt trading, buoyed by the company’s plan to maintain its dividend and a forecast of unchanged gross margins.

“A stable dividend is better than we expected,” Kepler Cheuvreux analyst Jurgen Kolb said in a note. “The 2016 outlook was already disclosed, but a flat gross margin is better than we expected.”

Avoiding deep price cuts on items like 900-euro ($988) suits and 1,100-euro cocktail dresses is top of mind for the company two weeks after the departure of Claus Dietrich Lahrs after eight years. A slumping Asian market has led to discounting, which detracts from Boss’ luxury image, and the company’s now shuttering outlets. It plans to invest less than 200 million euros in expansion this year, compared with 220 million euros in 2015.

The company’s EBITDA margin last year narrowed to 21.2 percent from 23 percent. The dividend was held at 3.62 euro per share.

Moving Upmarket

While the company’s strategy of moving upmarket and expanding in high-design womenswear is sound, discounting at both ends of the price spectrum and a potentially protracted search for Lahrs’ replacement are worrisome, Citigroup analyst Thomas Chauvet has said.

Meanwhile, stores like Intidex’s Massimo Dutti and Hennes & Mauritz AB’s & Other Stories are swiping customers from the lower end of the market, according to a Bloomberg Intelligence analysis. Inditex said Wednesday that revenue gained 15 percent in the start of this quarter on an adjusted basis, maintaining last year’s growth rate.

“If people keep discounting it, it becomes more of a mainstream apparel brand and people become reluctant to pay full price,” said Bloomberg Intelligence analyst Charles Allen.

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