METZINGEN, Germany, March 26 (Reuters) - German fashion house Hugo Boss (BOSG_p.DE) expects profitability to grow this year despite slowing sales, it said on Thursday March 26 after reporting better-than-expected 2008 earnings.

Hugo Boss Collection

Full-year earnings before interest and tax (EBIT), excluding special items, rose to 226.5 million euros ($307.5 million) from 207.9 million a year earlier, beating the average estimate in a Reuters poll of 215 million euros as well as its own target.

Hugo Boss expects "to be confronted with a challenging market environment and the danger of increasing consumer restraint in the coming fiscal year 2009", Chief Executive Claus-Dietrich Lahrs said.

Many analysts have said they expect the global luxury market to fall about 10 percent this year as the economic downturn curbs spending by the ultra-rich.

Sales would grow more slowly this year as a result, but thanks to already implemented restructuring measures operating income as a percentage of sales would rise, Hugo Boss said.

It expects sales to improve in 2010 "when the economic situation improves", it added.

Hugo Boss shares rose 1.4 percent to 11.45 euros by 0850 GMT, slightly outperforming the German mid-cap index .MDAXI, which was down 0.3 percent.

Hugo Boss, which is owned by private equity group Permira [PERM.UL], trades at a discount to other luxury goods makers.

Analysts point to increased uncertainty following the takeover by Permira, high debt, management changes and the deteriorating market environment for accessible luxury goods.

(Reporting by Eva Kuehnen)