Hugo Boss performance in decline on China slow down

Hugo Boss has abandoned its 2015 profit target, joining the ranks of luxury goods companies warning of slowing sales growth in China. Hugo Boss Group said its goal to attain earnings before interest, tax, depreciation and amortization representing 25 percent of sales will be achieved later than its objective of 2015.

China has been the engine of the luxury goods industry in recent years, but a weakening in economic growth there, coupled with a crackdown on bribery, has tempered demand this year. French spirits group Remy Cointreau also reported a slowdown in Chinese demand on Tuesday, following similarly cautious comments from upmarket fashion groups such as LVMH and Burberry.

“A particular concern is China,” Hugo Boss chief executive Claus-Dietrich Lahrs told investors at an event in Hong Kong, adding there was little sign of the country returning to the double-digit percentage sales growth of recent years. Analysts estimate luxury industry sales will rise around 4 percent in China this year, Lahrs said.

Hugo Boss reiterted its target to reach sales of 3 billion euros ($4.1 billion) in 2015, but that it would no longer be able to reach a 25 percent EBITDA margin – earnings before interest, tax, depreciation and amortization as a percentage of sales – that means it will miss a 2015 EBITDA target of 750 million euros.

To compensate for weak markets and take control of the way its clothes are sold, Hugo Boss has been moving from selling its products through wholesale partners such as department stores to setting up its own shops – another industry-wide trend. This strategy, which involves opening around 50 shops a year, has helped hold up sales during the economic downturn in Europe, Chief Financial Officer Mark Langer said, although the cost of expanding has held back margins.

Hugo Boss now expects more than 60 percent of its sales will come from its own retail stores in 2015, compared with a previous forecast for 55 percent. The group also maintained a forecast made at the end of last month for currency-adjusted sales and earnings to rise by between 6 percent and 8 percent in 2013.

adapted from Bloomberg and Reuters

Hugo Boss, Fall Winter 2013-14