Hugo Boss to close more stores as cost cuts bear fruit
By Emma Thomasson BERLIN (Reuters) - Hugo Boss beat forecasts for quarterly operating profit on Friday and new boss Mark Langer said he would close around 20 more stores as he extends a cost cutting drive to revive the struggling German fashion house. The company, known for its sharp men's suits, also cut its full-year sales forecast. But its shares jumped almost 7 percent as analysts saw signs of an improvement for a stock which has underperformed the luxury sector to fall 30 percent this year, "Second-quarter results were surprisingly well above expectations ... we see limited downside from here," said Citi analyst Thomas Chauvet, who rates the stock "buy". Adjusted operating earnings fell 13 percent to 108 million euros (91.2 million pounds) in the second quarter on sales down 4 percent to 622 million, ahead of analysts' average forecasts for 88 million and 611 million respectively. Hugo Boss said improvements in stock management, lower discounts, cuts to store rental contracts and lower administration costs were all helping operating profit. Net profit, however, was hit by special items of 57 million mainly due to costs from closing stores. "To return to profitable growth again in the medium term, we have made decisions that are painful to begin with," Langer said. "The market environment will remain difficult for the foreseeable future." Former boss Claus-Dietrich Lahrs had taken the German label more upmarket as the luxury market boomed, opening more than 400 stores worldwide and putting a bigger focus on womenswear. But the luxury sector is now going through its most severe slowdown in seven years, prompting Lahrs to quit in February as Hugo Boss sales slumped in the United States and China. Langer, the former finance chief who was appointed chief executive in May, had already announced plans to cut costs by renegotiating rents, shutting stores and shifting marketing spending back to its core menswear business. He will present a new long-term strategy on Nov. 16. Langer said Hugo Boss would shut another 20 or so loss-making stores - including large ones with long rental contracts - in the next 18 months in Asia, Europe and North America, in addition to 20 it had already said it would shut in China. He said he did not plan any further major closures after that. He expects the closure of stores, which have diluted the operating margin by 60 basis points in the past year, to have a "strongly positive effect" on profits in 2017 and beyond. Langer said he would also extend a plan to stop selling the brand at discount-only outlets in the United States, focussing instead on high-quality formats in department stores. Hugo Boss now forecasts full-year currency adjusted sales to fall between zero and 3 percent, compared with analysts' average forecast for a 2.5 percent fall. It expects operating earnings before special items to fall 17 to 23 percent. At 0857 GMT, Hugo Boss shares were up 6.8 percent at 55.79 euros, on track for their best day since March 2012, but still trading at a big discount to peers such as Burberry and LVMH. (Reporting by Emma Thomasson; Editing by Alexander Smith and Mark Potter)
