May 3, 2016
Ailing Hugo Boss to cut rent costs, focus on menswear
May 3, 2016
Germany's Hugo Boss will seek to cut costs by renegotiating rents, shutting stores and shifting marketing spending back to its core menswear business after quarterly sales and profits fell short of expectations.
Former Chief Executive Claus-Dietrich Lahrs took a brand known for its sharp men's suits more upmarket, opened hundreds of stores around the world and put a bigger focus on womenwear, teaming up with designer Jason Wu in 2013.
Lahrs stepped down in February after the share price tumbled following a profit warning due to a steep fall in sales in the United States and China. Hugo Boss gave no update on the hunt for a new chief executive on Tuesday.
Luxury groups including LVMH, Richemont CFR.VX and Burberry have posted weak first-quarter sales, hit by lower tourist spending and depressed demand in cities such as Hong Kong, prompting them to close stores and renegotiate rents.
Hugo Boss shares, down more than a quarter this year to trade at a discount to most luxury peers, were up 2 percent by 1325 GMT, compared to a 1 percent weaker German mid-cap index
Citi analyst Thomas Chauvet said investors were focusing on confirmed guidance for 2016, cost cuts, store closures and the search for a new CEO, rather than on the weak first quarter.
Finance chief Mark Langer, holding the fort in the absence of a new CEO, said Hugo Boss would shift its attention back to menswear, which still accounts for 90 percent of sales, but said he remained committed to womenswear and the Wu deal.
"We have overexposed ourselves in space and marketing to womenswear," Langer told a conference call for analysts.
Langer said the more targeted approach to marketing as well as renegotiating rental agreements and cutting administrative expenses should enable Hugo Boss to make cost savings of around 50 million euros (39.70 million pound) in 2016.
Hugo Boss has already secured lower rents in some markets and is in tough negotiations on rent reviews for some larger stores, Langer said, adding it is willing to close some stores if it cannot agree lower rents.
Opening fewer stores as well as postponing the expansion of the group's headquarters will help it cut investments to 160 million to 180 million euros in 2016, from 220 million last year.
Quarterly net profit fell 49 percent to 38.5 million euros on sales down 4 percent to 643 million, missing average analyst forecasts.
Hugo Boss said it expect sales and earnings to improve in the second half, confirming its outlook for a percentage rise in currency-adjusted sales in the low single-digits, but a low double-digit percentage fall in operating profit.
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