HUGO BOSS Second Quarter Results 2018

Posted on by vbodmer

On August 2, 2018, Hugo Boss published our Second Quarter Results as well as our Half Year Report 2018.

HUGO BOSS achieves robust sales growth in the second quarter andconfirms its outlook for the full year

  • Currency-adjusted sales up 6% in the second quarter
  • Retail comp store sales increase 5%
  • Online business continues to grow at a strong double-digit rate
  • Europe achieves 9% sales growth
  • EBITDA before special items virtually unchanged from the prior year

“Our strategic realignment is taking effect. We are right on track,” says Mark Langer, CEO of HUGO BOSS AG. “The sales growth in the second quarter speaks for itself: we achieved almost double-digit growth in Europe and were also able to continue our recovery in the challenging German market. Our collections are very well received at home and abroad. This is reflected both in the positive feedback from our wholesale partners and in the robust momentum of our retail business. The performance of our online store is particularly encouraging. I am therefore very confident that we will achieve our targets for the full year.”

HUGO BOSS achieved robust sales growth also in the second quarter of 2018. Group sales increased by 6 % to EUR 653 million in local currencies. The Group’s own retail business once again demonstrated its strength, with comp store sales growth of 5 % thanks to gains in all regions and sales formats. Sales from the Group’s own online business grew by 47 %. Sales in the wholesale business also picked up significantly, increasing by 10 %. Europe was the most dynamic region, with a currency-adjusted increase of 9% and growth in all its major markets.

At EUR 106 million, EBITDA before special items remained virtually unchanged compared to the prior-year period. Continued investment in product quality, the digital transformation of the business model and negative currency effects have curbed the profit development.

Overall, the company recorded currency-adjusted sales growth of 5% in the first six months of fiscal year 2018. At EUR 205 million, EBITDA before special items was unchanged over the prior year. On the basis of these results, HUGO BOSS confirms its outlook for the full year. The Group continues to expect currency-adjusted sales growth in the low to mid single-digit range. In addition, EBITDA before special items is expected to develop within a range of –2% to +2% compared to the prior year.

HUGO BOSS also made further progress in the systematic implementation of its strategic initiatives, in particular the two-brand strategy focusing on BOSS and HUGO. In this context, the company celebrated the reopening of further BOSS stores with the new store concept. As a result, customers in major cities such as London, Singapore and Munich can experience the BOSS collections in the new ambiance, which enhances the shopping experience by means of modern architectural elements and a variety of digital services. In addition, the first HUGO Store with a unique store concept opened in Amsterdam at the beginning of June. With its unconventional fittings and firmly integrated social media offers, the concept speaks to the fashion- forward customers of HUGO. Further HUGO stores will be opened in selected European cities, including Paris and London, in the second half of the year.

At the beginning of July, HUGO presented its Spring/Summer 2019 collection at the Berlin Fashion Week. Entitled “Mixmasters”, HUGO reflected Berlin’s eclectic street style and club scene with striking neon colors, lightweight fabrics and contrasting details.

The show was livestreamed on the website and social media. Already next month, BOSS will introduce its new Spring/Summer 2019 collection at the New York Fashion Week.

In doing so, BOSS menswear and BOSS womenswear will present themselves in a combined show for the first time in many years.

 

  • In the second quarter, sales development in Europe benefited from mid-single- digit growth in the Group’s own retail business and double-digit growth in the

wholesale business. The latter benefitted from delivery shifts as compared with the prior year. All core markets reported sales increases. In Great Britain, currency adjusted sales grew 12% due to double-digit increases in both distribution  channels. Sales in the Benelux countries were up 11%, mainly due to double-digit growth in the Group’s own retail business. In Germany and France, sales were also up on the prior year, with increases of 2% and 5% respectively.

  • Currency-adjusted sales in the Americas remained stable. In the US market, sales

growth in the Group’s own retail business was unable to fully offset a decline in the wholesale business. As a result, sales in the US declined by 1% overall.

In contrast, the Group recorded low- and mid-single digit sales increases in Canada and Latin America.

  • Asia/Pacific benefited from further growth in the Chinese market in the second

quarter. Sales in China increased by 8%. Comp store sales growth in mainland China was in the high single digits. Hong Kong and Macau continued to perform very well, recording double-digit growth rates. Sales also rose in Japan.

  • The Group’s own retail business (including outlets and online stores) again recorded robust sales growth in the second quarter, with currency-adjusted sales up by 5%.
  • Sales rose by 5% on a comp store and currency-adjusted basis. All sales formats and regions recorded growth. Freestanding stores, and the online business in particular, performed better than the outlet business. In Asia/Pacific, sales increased at a high single digit rate. Comp store sales in Europe and in the Americas grew at a mid-single digit and low single digit rate, respectively.
  • Overall, sales in the Group’s own retail business in Europe were up 5% on a currency-adjusted basis and came to EUR 256 million (Q2 2017:

EUR 246 million). Sales in the Americas amounted to EUR 94 million (Q2 2017: EUR 100 million), representing a currency-adjusted sales increase of 3%.

In Asia, sales grew by 7% in local currencies to EUR 93 million (Q2 2017: EUR 90 million).

  • Sales in freestanding stores and shops-in-shops rose by 3% on a currency- adjusted basis. Outlet sales were up 4%. In its online business, HUGO BOSS achieved a 47% increase in sales. An expanding client base, improvements in the user-friendliness of the hugoboss.com website and its more consistent alignment to BOSS and HUGO supported this development.
  • In the wholesale business, delivery shifts had a positive impact on the sales development as compared to the prior year. The replenishment business, which allows HUGO BOSS to react to short-term demand from wholesale partners, also contributed to sales growth.
  • At EUR 144 million, currency-adjusted wholesale sales in Europe were 17% higher than in the prior year (Q2 2017: EUR 126 million). In the Americas, currency-adjusted sales decreased by 5%, amounting to EUR 43 million

(Q2 2017: EUR 49 million). The Asia/Pacific region saw a 2% currency-adjusted increase in sales. As in the prior year, sales amounted to EUR 7 million

(Q2 2017: EUR 7 million).

  • Sales in the license business declined in the second quarter as a result of timing effects relating to the company’s license income. License sales are expected to increase in the second half of the year.

  • The sales development of BOSS and HUGO was impacted by ongoing changes in the distribution strategy. The Group has decided to transfer space from HUGO to BOSS both for certain product categories in the wholesale channel and in selected own retail stores. Besides that, the Group is reducing the presence of HUGO in the outlet channel. These measures are intended to sharpen the brand message of HUGO.
  • As a result, HUGO brand sales declined in the second quarter. Double-digit growth

in casualwear was unable to compensate for the declines in businesswear.

  • The sales development of the BOSS brand benefited in particular from double- digit growth in casualwear, where continued investments in the quality of the collections led to greater desirability.

Sales in businesswear also saw significant growth. Finally, the athleisure offering reported a slight increase in sales compared with the prior year.

  • The sales development of menswear benefited in particular from double-digit growth in casualwear.
  • The decrease in sales in womenswear is attributable to the BOSS brand and related to the reduction of retail space in freestanding stores, which was only partly offset by growth in the HUGO brand.

  • The decrease in the gross profit margin was mainly due to the decline in sales share of the Group’s own retail business in the second quarter. Further investments in the product quality of BOSS and HUGO also contributed to this development.
  • Operating expenses were slightly up on the previous year.
  • A slowdown in retail expansion and positive effects from renegotiated rental contracts in the Group’s own retail business limited the increase in selling and distribution expenses. Currency effects also had a positive impact. Marketing expenses remained unchanged compared with the prior-year period.
  • The increase in administration expenses resulted from further investments in the digital transformation of the business model. HUGO BOSS expects these investments to deliver an important stimulus to sales and to accelerate operational processes.
  • EBIT was below the prior-year level, mainly due to the non-recurrence of other operating income recorded in the previous year. Following an improved financial result, the decline in the Group’s net income was lower as compared to EBIT.
  • EBITDA before special items was slightly lower than in the prior-year period.

The increased gross profit did not fully offset the higher operating expenses. Overall, currency effects had a negative impact on earnings growth and mainly resulted from the depreciation in currencies outside the Eurozone, where HUGO BOSS generates significantly more sales than costs.

  • In Europe, higher sales more than offset a slight increase in operating expenses. The adjusted EBITDA margin rose by 280 basis points to 31.4% (Q2 2017: 6%).
  • In the Americas, negative currency effects were the main reason for a significant decrease in segment At 17.0%, the adjusted EBITDA margin was 700 basis points below the prior-year figure (Q2 2017: 24.0%).
  • Segment profit in Asia/Pacific was marginally lower than in the prior-year period. The increase in sales was more than offset by an increase in selling and distribution expenses. In this region too, negative currency effects weighed on segment At 22.2%, the adjusted EBITDA margin was down 110 basis points on the prior year (Q2 2017: 23.3%).
  • The license segment profit was up on the prior

 

  • The development of trade net working capital (TNWC) primarily reflects the increase in inventories. The higher inventory level is intended to support sales momentum, especially in own retail.
  • The development of free cash flow over the past twelve months led to a slight decrease in net financial liabilities.

  • The renovation of existing retail stores and the cross-channel integration and digitization of the Group’s own retail activities were the focus of investment activity in the second quarter.
  • The development of free cash flow reflects a higher cash outflow from the change in trade net working capital.

 

  • At the end of the second quarter, the number of stores in the Group’s own retail business was down slightly as compared to December 31,
  • Six BOSS stores were newly opened, while there were 11 closures of stores with expiring This included the relocation of two sites within the same metropolitan area.
  • The first HUGO store with the new store concept opened in Amsterdam in the second Further openings in selected European cities are planned for the second half of the year.
  • Including shop-in-shops and outlets, the total selling space of the Group’s own retail business declined by 2% to around 153,500 sqm (December 31, 2017: 156,500 sqm).
  • Selling space productivity in the Group’s own retail business rose by 2% to around EUR 11,300 per sqm in the past twelve months (January to December 2017: EUR 11,100 per sqm).

  • The Managing Board reconfirms the financial outlook for the full year.
  • A detailed presentation of the outlook for 2018 can be found in the Annual Report 2017

For further information on our Results, please see the Quarterly Statement and the First Half Year Report on our website

www.group.hugoboss.com