FRANKFURT, Feb 3 (Reuters) - German premium fashion house Hugo Boss (BOSG_p.DE) reported a 7 percent drop in full-year sales while restructuring efforts kept margins stable, it said on Wednesday 3 February, pointing to further challenges ahead.

Hugo Boss

Chief Executive Claus-Dietrich Lahrs said he was "cautiously optimistic" for the current year, "especially as we used the past year to strengthen our competitive advantage".

"The year 2010 as a whole will still be a big challenge for our industry, since many markets will see only very modest growth. However, we expect our market environment to stabilise over the course of the year," Lahrs said.

Boss's performance improved in the fourth quarter as it said sales came in slightly above last year's level. It had earlier expected a drop of 9 percent.

Lahrs told Reuters earlier that the company benefited from retailers' re-orders in the quarter as many had been too cautious initially. [ID:nLDE60H2CC]

Hugo Boss shares extended losses after the news and were down 1.9 percent at 24.97 euros by 1529 GMT, underperforming a 0.4 percent drop in German mid-cap index .MDAXI.


MOST DEMANDING YEAR

To cushion the impact of what Lahrs called one of the most demanding years for the industry, Hugo Boss closed underperforming stores and some showrooms, renegotiated contracts with suppliers, stopped delivering to high-risk customers in Eastern Europe, and pushed overseas expansion.

The full-year core operating profit margin stayed at 17 percent.

The suit maker posted a 6 percent drop in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to 270 million euros on sales of 1.56 billion euros, down 7 percent.

Analysts on average expected core earnings of 222.05 million euros on revenue of 1.55 billion euros, according to Thomson Reuters I/B/E/S.

The company, in which private equity group Permira [PERM.UL] holds 88 percent of the voting rights, trades at about 15 times projected 2011 earnings, while Polo Ralph Lauren (RL.N), and Burberry (BRBY.L) are at a multiple of around 18, according to Thomson Reuters StarMine, which weights analysts' forecasts according to their track record.

Analysts blame lower visibility and sweeping management changes following the 2007 takeover by Permira for the discount.

For an analysis on Hugo Boss click on [ID:nLDE6100WG] (Reporting by Eva Kuehnen; Editing by Michael Shields and David Cowell)