By Linda Pasquini and Helen Reid
(Reuters) – Hugo Boss raised its sales and profit outlook on Wednesday as a brand revamp and marketing push helped the German fashion house overcome sluggish sector-wide demand in China and the United States.
The premium fashion group has shown resilience in slowing U.S. and European markets while boosting sales in Asia despite China’s slower-than-expected recovery.
Shares in luxury goods companies have come under pressure due to worries over the pace of China’s post-pandemic rebound.
Still, Hugo Boss reported a 56% increase in currency-adjusted sales in China from a year earlier in the second quarter, while the business in the Europe, Middle East and Africa region and the Americas benefited from a pick-up in tourism and gained market share among younger consumers.
“What they’ve achieved over the past couple of years is quite extraordinary, how quickly they have managed to reposition the brand away from formalwear to a 24/7 lifestyle brand with a more appealing casualwear offering,” said Thomas Chauvet, analyst at Citi.
After reporting a jump in group currency-adjusted sales to 1.03 billion euros ($1.13 billion) in the second quarter from 878 million euros a year earlier, the retailer forecast full-year sales would grow 12% to 15% to 4.1 billion to 4.2 billion euros, up from its previous 10% growth forecast.
Operating profit was now expected to hit 400 million euros to 420 million euros, up from 370-400 million euros seen earlier.
Hugo Boss said it opened 17 new Boss stores in the first half, including six in Asia. Yves Mueller, chief financial and operating officer, said the company will open its first larger store in China’s fifth biggest city Guangzhou in the fourth quarter.
China still offers strategic potential for Hugo Boss, Mueller told reporters on a call.
SURPLUS STOCKS WEIGH
Hugo Boss shares, which have gained 32% this year, were down 2% by 1320 GMT on Wednesday as high inventories caused some concern.
Retailers around the world have been struggling with surplus stocks of clothing and footwear after last year’s supply chain disruptions.
Trade net working capital is expected to increase to between 18% and 19%, Hugo Boss said, up from prior guidance of 17%, due to inventories which jumped 53% in currency-adjusted terms over the first half.
Hugo Boss said it expected a gradual normalisation of inventories to begin in the second half and was confident of bringing stocks below 20% of group sales by 2025, from 56.6% at the end of June.
The high inventories “could become an issue in case of an abrupt slowdown,” said Cedric Rossi, analyst at Bryan Garnier in Paris.
Against a backdrop of rising costs Hugo Boss has raised its prices twice in the past 12 months by a “mid single-digit” percentage, but Mueller said there’s been no decision yet on further price increases.
($1 = 0.9097 euros)
(Reporting by Linda Pasquini and Anastasiia Kozlova in Gdansk, Helen Reid in London; Editing by Milla Nissi, Christopher Cushing, Jane Merriman and Tomasz Janowski)
