Hugo Boss said the renovation of several major stores should revive sales growth after the German fashion house reported a drop in first-quarter earnings due to reorganisation costs, higher marketing spending and a strong dollar.
The earnings drop overshadowed the quarter’s 4% growth in comparable retail sales, according to Piral Dadhania, an analyst at RBC Europe.
Its shares, which fell almost 2% in Frankfurt trade, have now lost 19% in the past year.
Finance chief Yves Mueller said stores had already been reopened in New York and Tokyo, while the refurbishment of the company’s biggest flagship store on the Champs Elysees in Paris, and a store in Chicago will be complete after the summer.
“Store optimisations will drive performance,” Mr Mueller told a conference call for analysts.
Hugo Boss shares fell after it reported first-quarter operating profit fell 22% to €55m on sales up a currency-adjusted 1% to €664m, missing average analyst forecasts.
Sales fell a currency-adjusted 8% in the Americas, as visits to stores were hit by weaker consumer sentiment and lower tourist purchases.
Sales rose 4% in Asia, boosted by double-digit growth in mainland China, although the market environment was tougher in Hong Kong and Macau.
Known for its smart men’s suits, Hugo Boss has introduced casual and sportswear styles to appeal to a younger audience and invested heavily in its online products after a bid to go upmarket backfired a few years ago.
Sales of the core Boss brand were flat in the first quarter as growth in casual wear compensated for a slight decline in business wear, while its younger Hugo brand saw double-digit sales growth in casual wear.
Online sales jumped in the first quarter, up 26%, while retail sales rose by 4% on a same-store basis.
Investment in digitalisation and reorganisation weighed on earnings in the first quarter, but chief executive Mark Langer said they should improve efficiency in the rest of the year.
Mr Mueller said phasing effects related to marketing expenses should also help earnings during the year, after costs for a campaign shoot for the BOSS fall/winter collection were booked in the first quarter, while currency effects should ease.
Hugo Boss confirmed its 2019 outlook for a high single-digit percentage increase in operating profit and a mid-single digit percentage rise in currency-adjusted sales.
- Reuters and Bloomberg