Despite robust growth in Europe, Hugo Boss to cut costs in 2016

Fiscal year 2015 was the sixth year of growth in succession for Hugo Boss with sales and operating profit rising to new levels. However, the company said, due to the difficult market situation and company-specific challenges in the US and China, earnings fell slightly short of expectations. For the current year, Hugo Boss once more expects sales to grow at a low-single-digit rate in local currencies, but with a low-double-digit decline in earnings.

"Hugo Boss remains a sound, growing company. However, in an increasingly challenging market environment, success can't be taken for granted," says Mark Langer, CFO of Hugo Boss, adding, "To safeguard our profitable long-term growth, we have to align our strategy even more rigorously with customer needs. Management has therefore initiated measures to successfully address the external and company-specific challenges.”

Strong performance in Europe in 2015

Hugo Boss Group's sales increased by 9 percent to 2,809 million euros (3,081 million dollars) in 2015, adjusted for currency effects, the increase came to 3 percent and was therefore in line with the forecast made in October last year. A currency-adjusted sales increase of 5 percent in the fourth quarter, which was mainly sustained by Europe with a sales increase of 6 percent for the full year. Growth in Europe accelerated to 10 percent in the fourth quarter with both the Group's own retail business and the wholesale business contributing to this development.

In contrast, currency-adjusted sales in the Americas and Asia/Pacific declined slightly by 1 percent and 3 percent respectively over the year as a whole. In the Americas, fourth-quarter sales also dipped 1percent below the prior year's level in local currencies, mainly because sales trends in the US market did not improve as compared to third quarter. Double-digit sales decreases in China led to a currency-adjusted decline of 7 percent in Asia/Pacific in the fourth quarter.

Sales in the Group's own retail business were 7 percent above the prior year's level in local currencies in 2015. The online business made an important contribution with double-digit growth. Currency-adjusted retail comp sales increased by 2 percent. In the fourth quarter, the Group's own retail business grew by 6 percent adjusted for currency effects, showing similar growth to the full year. However, retail comp sales for the period decreased slightly by 1 percent. The Group's own retail network saw a net expansion of 72 stores to a total of 1,113 in the course of the year. Sales in the wholesale business fell 3 percent short of the prior year's level in local currencies in fiscal year 2015. However, this channel showed positive growth in the fourth quarter, with sales up by 2 percent.

Despite robust growth in Europe, Hugo Boss to cut costs in 2016

Segments performed well during the year

Menswear grew by 3 percent in local currencies over the full year in 2015. Womenswear showed an above-average currency-adjusted rise of 4 percent, buoyed up by double-digit growth in Boss Womenswear.

At 66 percent, the gross profit margin was 10 basis points below the prior-year figure. Increased discounting activities, particularly in the US, led to a fall in the gross profit margin of 80 basis points to 67.4 percent in the fourth quarter. The adjusted EBITDA margin came to 21.2 percent for the whole of 2015, 180 basis points down on the prior year. The consolidated net income attributable to the equity holders was 4 percent short of the prior-year value at 319 million euros (349 million dollars), due to higher depreciation and amortization and increased financial expenses.

Reconfirms attractive dividend policy

The Managing Board and the Supervisory Board of the company intend to propose to the Annual Shareholders' Meeting an unchanged dividend of 3.62 euros (3.97 dollars) per share for fiscal year 2015. In addition, the company is affirming its existing dividend policy, according to which between 60 percent and 80 percent of consolidated net income should be paid out to the shareholders. The proposal corresponds to a payout ratio of 78 percent of the consolidated net income attributable to the equity holders of the parent company.

Hugo Boss expects to be able to increase sales in fiscal year 2016 by a low-single-digit percentage rate, adjusted for currency effects. The forecast is based mainly on solid growth in Europe. A slight decline is expected in both the Americas and Asia/Pacific. The sales growth will be sustained by the Group's own retail business. Currency-adjusted sales in the wholesale channel are expected to fall by a mid- to high-single-digit percentage rate, primarily due to structural changes and takeovers in the US wholesale business.

According to the forecast, the gross profit margin will remain more or less stable. The above-average growth in the Group's own retail business is likely to offset negative effects from price adjustments in Asia. Further investments in the transformation of the business model and the brand, however, are expected to lead to a decrease at a low-double-digit percentage rate in operating profit.

Initiatives to drive profit growth

In order to safeguard long-term sales and profit growth, the Managing Board has initiated actions to address the external and company specific challenges including limiting its distribution in the US wholesale segment and ensure that the Boss core brand is offered only in shop-in-shops, to avoid heavy discounting, an agreement has been reached with the Macy's department store chain for the company to manage all eight Boss shop-in-shops itself in the future.

In China, Hugo Boss is optimising its retail presence by carrying out extensive renovations and closing around 20 stores in this market. Price structures in China and some other Asian markets have been brought closer to the European level.

 

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