BERLIN — Cost-cutting was the main topic at a Hugo Boss press conference revealing second-quarter results on Thursday morning. Revenues at Hugo Boss fell 1 percent during the period to 1.01 billion euros.
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With a design revamp and a major investment into things like a star-studded marketing campaign and business redevelopment, a previously moribund Hugo Boss had been doing very well — until now.
“We boosted brand relevance…winning over consumers from all over the world,” the company’s chief executive officer Daniel Grieder said in a statement. But “the global market environment deteriorated substantially in the first half of 2024. [This] led to a rapid slowdown in growth across the entire industry, which we could not completely escape from.”
Analysts had previously noted this was the weakest quarter Hugo Boss had seen since Grieder had come on board in 2021 and instituted the new action plan, called Claim 5. The goal was to be generating revenues of 5 billion euros a year by 2025.
But Hugo Boss was still ahead for the year, the company’s chief financial officer Yves Mueller argued during the press conference. The company had notched up 3 percent growth, on a currency adjusted basis, for the first half of the year, with sales of 2.03 billion euros over the last six months.
The 5 billion euro goal was still achievable too, Mueller added. There was just going to be a slight delay, he concluded.
In the Americas, where Hugo Boss has been making significant effort to market itself as a 24/7 lifestyle brand rather than a formalwear expert, sales rose 5 percent, on a currency adjusted basis, to 250 million euros. Most of this growth came thanks to U.S. consumers, the company explained, and is expected to continue throughout the year.
Sales in Hugo Boss’ home market of Europe, the Middle East and Africa — which generates the largest part of its income — fell 2 percent, currency adjusted, to 604 million euros over the second quarter. In a statement, the company said that “dampened consumer sentiment” had impacted it particularly badly in the U.K., France and Germany. The company expects the situation in EMEA to improve slightly, so that by the end of the year the sales territory would still see growth, albeit in low-single digits.
In the Asia Pacific region, revenues fell 4 percent, currency adjusted, to 134 million euros. The Chinese market was proving difficult but, Hugo Boss said, sales in the rest of Asia Pacific, and in Japan in particular, were actually improving, heading into high-single digits. However, muted demand in China is likely to continue to weigh on Asia Pacific sales for the rest of the year, the company predicted.
In terms of product categories, menswear from the company’s more formal Boss brand fell 2 percent, in currency adjusted terms, to 794 million euros, while womenswear from the same line grew 2 percent to 68 million euros.
Hugo Boss’ more casual line, Hugo, which incorporates sportswear and denim, grew 3 percent, on a currency adjusted basis, to hit 152 million euros.
The roots of the slowdown are beyond Hugo Boss’ control, Mueller said, noting that geopolitical uncertainty and inflation were factors weighing on consumer demand. “If you look at the situation in the sector right now, you can see we are not alone,” Mueller said. “A whole line of important names in the premium and luxury sector — and in other consumer sectors — have also reduced their forecasts.”
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Mid-tier luxury brands including Burberry and Swatch have reported similar concerns over the past few weeks.
“So in the second half of this year we are going to focus more strongly on things we can control,” he continued. “Our costs.”
Over the second quarter, Hugo Boss’ expenses rose and the company’s EBIT — earnings before interest and taxes, or operating profit — decreased by 42 percent to 70 million euros. This reflected “lower revenues in the three month period as well as higher operating expenses,” the company conceded.
EBIT was below market analysts’ consensus, which forecast for an operating profit of around 82 million euros.
The focus for the rest of the year would be on “non-strategic areas of the business, with particular emphasis on sales, marketing, and administration,” Grieder stated.
“We try to match our costs with our turnover,” Mueller explained. For example, in 2023, when the company’s turnover grew 15 percent, costs grew 13 percent, the executive said. Over the next half year, the plan was to bring cost increases down into the low-single digits, alongside the forecast growth rates, he added.
Hugo Boss had already lowered guidance for the full year in mid-July. The company expects sales to increase between 1 and 4 percent during 2024, totaling revenues of somewhere between 4.2 billion and 4.35 billion euros. Previously it expected sales to increase by between 3 and 6 percent to up to 4.45 billion euros.
Grieder further explained the company’s renewed focus on costs. They would look at sourcing because now that the company had grown, it was able to work at scale, he said. Some of the store refreshes in more peripheral locations might also need to be postponed, he said.
There may also be some reductions in marketing spend, a spokesperson from Hugo Boss replied to a WWD enquiry after the press conference. For example, the company might look at which peripheral events could perhaps be combined, or at curtailing or postponing activities that had been proven not to have such a big impact.
This would not have any repercussions for Hugo Boss’ planned trajectory though, the spokesperson insisted. “Claim 5 is sometimes perceived as being all about marketing,” she said. “And while the brand refresh was very important at the beginning, in fact, the new strategy also involves a balanced set of investments, in product quality, store refreshes, new production categories and digital business.”
Market analysts at the likes of Deutsche Bank, Jefferies and Baader Bank were cautiously optimistic about Hugo Boss’ cost cutting plans, saying only time would tell if the company was going to be able to achieve its objectives. On Thursday morning, Hugo Boss shares rose slightly on the stock market as a result.
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