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Hugo Boss reports positive Q2, reaffirms full year guidance

Business REPORT

Hugo Boss reports positive Q2, reaffirms full year guidance

By Prachi Singh

Aug 4, 2015

Hugo Boss witnessed a faster in the second quarter of 2015 than in the first three months of the year supported for growth in all regions. The management has reconfirmed its sales and profit targets for the full year.

The Group's currency-adjusted sales rose by 7 percent in the second quarter. In euros, the Group recorded an increase of 16 percent to 647 million euros (708 million dollars) due to positive currency effects. Europe made a substantial contribution to this development, posting currency-adjusted sales growth of 7 percent. Sales in the UK once more rose at a double-digit rate, and the pace of growth also increased in most of the other European countries.

“Thanks to the very healthy development of the Group's own retail business, growth accelerated in the second quarter,” said Claus-Dietrich Lahrs, CEO of Hugo Boss, adding, “The excellent trend in our online business contributed to this. Because of our strength in the European market, we expect the favorable trend to continue in the second half, even though conditions in the USA and China remain difficult.”

Revenues in the Americas increased by 5 percent in local currencies during the second quarter. The US market showed only moderate growth, up by 1 percent. Bolstered by double-digit rises in Australia and Japan, sales in Asia exceeded the prior year's level by 5 percent after adjustment for currency effects, while the Chinese market displayed a currency-adjusted rise of 6 percent. Positive effects from the takeover of a franchise partner and new openings more than offset weakening sales growth in Hong Kong.

Currency-adjusted sales in the Group's own retail business including outlets and online stores rose by 12 percent. Currency-adjusted retail comp store sales growth in this channel came to 6 percent. The online business grew by 34 percent after adjustment for currency effects, primarily due to the successful relaunch of the Hugoboss.com website last year. The wholesale business suffered from sales shifts resulting from further takeovers. Overall, currency-adjusted revenues in this distribution channel were 3 percent below the prior year’s level.

Menswear sales rose by 7 percent in local currencies, while womenswear recorded growth of 5 percent. The womenswear of the BOSS core brand, created by Artistic Director Jason Wu, increased by 13 percent. The gross profit margin fell by 20 basis points to 66.5 percent. Higher operating expenses resulted mainly from currency effects, own retail upgrades and expansion as well as investments in processes and competences in that area. EBITDA before special items improved by 12 percent and the adjusted operating margin thus contracted by 60 basis points to 19.1 percent. Net income increased by 13 percent in the quarter.

The Hugo Boss Group recorded sales growth of 5 percent in local currencies in the first half of the year. As a result of positive currency effects, this corresponds to an increase of 12 percent in the reporting currency. Revenues were up in all regions. With a currency-adjusted 5 percent increase in sales, Europe was the fastest-growing region. This development was broad-based, with Great Britain showing a particularly positive trend. Sales in the Americas rose by 3 percent in local currencies despite a persistently challenging market environment in the apparel retail sector. The US market grew at a slightly lower rate.

In Asia, sales were up 3 percent on the prior year after adjustment for currency effects. In addition to solid growth particularly in Australia and Japan, the takeover of franchise stores in Korea and China supported this development. The Chinese market increased by 1 percent after adjustment for currency effects in the first half.

Sales growth developed unevenly by distribution channel in the first half. The Group's own retail business including outlets and online stores recorded a currency-adjusted increase of 9 percent. At 23 percent, the online channel displayed the most vigorous growth. Comp store sales, after adjustment for currency effects, were up 5 percent on the prior year. The number of own retail stores saw a net expansion of 47 in the first six months, rising to 1,088 sites. The Group’s wholesale revenues declined by 2 percent in local currencies. Both menswear and womenswear grew by 5 percent in local currencies in the first six months. Womenswear of the BOSS core brand again increased at a double-digit rate, displaying a rise of 12 percent.

The gross profit margin showed a stable trend compared to the prior year at 66 percent. EBITDA before special items was up 6 percent, however the adjusted EBITDA margin for the first half decreased by 120 basis points to 19.4 percent.

The company reconfirms its forecast that it will increase currency-adjusted sales in 2015 by a mid-single-digit rate. All regions are likely to contribute to the achievement of this goal. The Group once more projects above-average growth in its own retail business. A mid-single-digit increase is now expected for retail comp store sales. In addition to the opening of around 65 new stores, the Group's own retail business will also be expanded by further takeovers. Wholesale revenue will decline slightly due to sales shifts as a result of these takeovers.