Hugo Boss adjusts Asia pricing on weak sales
Hugo Boss has experienced weak sales in China and the US
Hugo Boss is to "adjust" its prices in Asia to bring them more in line with the Americas and Europe, after the German luxury fashion brand noted weaker sales in China and the US.
In a trading update, Hugo Boss said the challenging market environment in China and the US, in addition to continued investment in growth, are expected to depress earnings in 2016. The news sent the group's share price down nearly 8% in morning trading to EUR51.54.
Sales in Hugo Boss's own retail business in the year-to-date 2016 were weaker than expected, it said, mainly in China and the US. This has forced the group to focus on implementing its strategy to strengthen the brand and transform to a customer-focused business model.
Consequently, Hugo Boss said it was adjusting its sales prices in Asia more closely to the levels in Europe and the Americas.
According to Reuters, analysts estimate that more than two-thirds of luxury purchases by Chinese buyers are made overseas, offering savings of more than 50% compared with China prices thanks to foreign exchange rates, tax refunds and other discounts.
Cost adjustment measures, however, will only be able to partially compensate for these effects, Hugo Boss said. It is also limiting distribution of the Boss core brand in the US wholesale business.
As a result, the company now expects adjusted operating profit in 2016 to decline at a low double-digit percentage rate compared to the prior year. It also no longer expects to improve its adjusted operating margin to a level of 25%.
Group sales are forecast to increase at a low single-digit percentage rate on a currency-adjusted basis, driven by continued "solid" growth in region Europe.
The company cut its full-year outlook in October last year due to market troubles in Asia. But it's not the only brand to experience a slowdown in China, with luxury powerhouse Burberry also cutting its outlook for similar reasons late last year.
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