Hugo Boss Considers Closing Some Stores as Earnings Plummetby
Fashion label reiterates outlook on better second half of year
Plans to save additional 50 million euros through cost control
Hugo Boss AG, the embattled German fashion retailer, reported the biggest decline in quarterly profit in at least six years and pledged to trim the store network it built up over the past decade to cut costs.
The company will decide within months on which shops it may shut, and will save an additional 50 million euros ($58 million) this year by reducing costs and rents, Hugo Boss said in a statement Tuesday. The stock, which lost half its value in the past year, fell 1.7 percent to 55.17 euros at 11:09 a.m. in Frankfurt.
The German fashion label, best known for men’s apparel such as suits and jackets, is paring back the network that former Chief Executive Officer Claus-Dietrich Lahrs expanded until rampant cost increases and discounts led him to resign. Hugo Boss said it expects improvement in sales and earnings this year, especially in the second half.
“Without any form of concrete leadership or strategy in place, one could clearly surmise the stock is un-investible at this point,” wrote John Guy, an analyst at MainFirst Bank. “We have sympathy with this view. However, it also paves the way for fresh, radical thinking about future brand strategy and positioning.”
Boss’s earnings before interest, taxes, depreciation and amortization and other items declined 29 percent to 93.5 million euros ($108 million) in the first quarter, the Metzingen, Germany-based company said. That missed the lowest analyst estimate compiled by Bloomberg, which was 95 million euros.
Boss operated 1,128 retail outlets itself as of the end of March, including 438 freestanding company stores. The closures could affect both categories, a spokeswoman said. In March, the retailer said it’s closing about 20 stores in China.
The company also sells its apparel through about 6,450 stores it doesn’t own. That gives it wider exposure to consumer trends and the effect of discounts than Hennes & Mauritz’s H&M chain, with 3,650 shops, and Inditex SA’s Zara, with about 2,160 outlets.
“We could see a much more significant review of retail space," said Charles Allen, an analyst at Bloomberg Intelligence. The retailer added 16 shops to its own network in the quarter even as it closed eight sites.
First-quarter sales in the U.S. tumbled 16 percent adjusted for currency effects, while Chinese sales were down 11 percent. In Europe, revenue fell 2 percent on a slow tourist trade, especially in France and Belgium, Boss said.
Adding to the management turmoil, the company replaced brand chief Christoph Auhagen last month with company veteran Ingo Wilts, who will rejoin Boss as chief brand officer from Tommy Hilfiger by Nov. 1.
Boss reiterated its forecast for a low single-digit percentage increase in currency-adjusted sales this year and a low double-digit decline in Ebitda. Gross margin is expected to be unchanged from last year’s level.