Hugo Boss Plummets as Turnaround Won’t Bear Fruit Until 2018

  • German clothier eliminates sub-brands, plans online expansion
  • Shares fall as much as 12% on lack of new cost savings goal

Hugo Boss AG plunged after saying it won’t return to growth until 2018 as the ailing German fashion house embarks on a turnaround that includes eliminating brands, slowing down store expansion and selling more online.

Chief Executive Officer Mark Langer said 2017 will be a transition year as it reorganizes its struggling wholesale unit that sells to U.S. department stores. The stock fell as much as 12 percent in Frankfurt, in part from disappointment that the company didn’t unveil any new cost cuts besides the 65 million euros ($61 million) already announced for this year.

The statement was “a bit light on numbers in terms of potential cost savings,” said John Guy, an analyst at MainFirst Bank, adding that the 490 million-euro analyst estimate for next year’s operating profit will likely be reduced. 

Langer needs to jumpstart Hugo Boss, whose shares have lost more than a third of their value in the past year. He’s adopted a strategy akin to Burberry Group Plc and Marks & Spencer Group Plc, which have dialed back expansion and weeded out smaller brands amid weak consumption in Europe. Langer’s plan involves making more affordable clothing, turning away from a luxury market that’s suffered from ebbing demand.

The company will only produce clothes under the Hugo and Boss brands, narrowing its focus to casualwear and business attire. The Boss Orange and Boss Green labels will be folded into the Boss brand, and Hugo’s entry-level prices will be about 30 percent lower than Boss clothing. 

“We think this is a sensible decision and will ensure the range is more consistent and less confusing to the customer,” RBC Europe analyst Claire Huff said in a note.

Price tags will be adjusted around the globe to close existing gaps brought on by currency fluctuations, with those in Asia coming down by about 15 percent and European prices raised slightly. Some Chinese customers only buy Hugo Boss items in Europe because the prices are so much higher at home, the company said.

Wholesale revenue that comes through U.S. department stores will decline at least 10 percent next year, Langer said. That business has suffered recently from a high level of discounting to lure shoppers.

For more analysis on the new strategy at Hugo Boss, click here

Womenswear, which accounts for about 11 percent of revenue, will become a lower priority. Boss won’t show a new womens’ line at fashion shows in New York next year, a retreat from an emphasis on that segment by Langer’s predecessor, Claus-Dietrich Lahrs. Boss is also upping its assortment of casual clothes and shoes, in line with a trend that’s seen men and women pair sneakers and other dress-down essentials with more polished outfits.

The Metzingen, Germany-based clothing maker reiterated its full-year forecasts. The company said Aug. 5 that it expects operating profit will decline by 17 percent to 23 percent and currency-adjusted sales will fall as much as 3 percent.

— With assistance by Stefan Nicola

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