German luxury fashion brand Hugo Boss expects the economic consequences of the coronavirus (Covid-19) outbreak to have a “significant” impact on the group’s sales and profit development in 2020, particularly in the first quarter.
In its annual results statement this morning (5 March), the group said with the spread of the coronavirus and the associated restrictions on public life, the retail environment in the Asia/Pacific region, particularly in mainland China, has been severely impacted since the end of January.
“Regardless of the undiminished huge mid- and long-term potential that Hugo Boss sees in this region, in the short term, the company expects significant sales losses over there.”
After what it called a “very encouraging start to the new year”, more than half of the group’s approximate 150 points of sale in mainland China, Hong Kong, and Macau have been closed since the end of January. The remaining points of sale mostly operate with severely limited opening hours and have experienced a significant decline in visitors.
Hugo Boss also noted a “noticeable” decline in sales in other key markets.
While the group anticipates a gradual normalisation by the middle of the year, it added: “At the same time, Hugo Boss expects the economic consequences of the spread of the coronavirus to have a significant impact on the group’s sales and profit development in 2020, especially in the first quarter.”
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By GlobalData2020 outlook
Against this backdrop, Hugo Boss expects group sales will develop within a range of 0% to +2% in 2020, adjusted for currency effects.
While it forecasts currency-adjusted sales to increase at a low single-digit percentage rate in Europe, the Americas are expected to see a largely stable development of currency-adjusted sales. Currency-adjusted sales in the Asia/Pacific region are forecasted to decline by a single-digit percentage rate.
For its own retail business, Hugo Boss expects currency-adjusted sales in 2020 to grow at a low to mid-single-digit percentage rate.
EBIT, meanwhile, is forecast between EUR320m-EUR350m (US$357.8m-$391.4m), compared to EUR344m in 2020. The company notes final sales development is crucial to the amount of EBIT that can be expected.
Meanwhile, with respect to the group’s net income, the company anticipates an increase of up to 10%. This should also be supported by an improvement in the group tax rate.
Fiscal 2019 results
As stated on a preliminary, unaudited basis in January, Hugo Boss increased sales by 3% to EUR2.9bn (US$3.2bn) in fiscal year 2019, representing a currency-adjusted increase of 2%. In the group’s own retail business, currency-adjusted sales grew 4%, while currency-adjusted sales in its own online business increased 35% to EUR151m, mainly driven by the expansion of online partnerships.
By region, Europe benefited from sales growth in many key markets, including Great Britain and France, leading to a rise of 4% in revenues, adjusted for currency effects. In the Americas, Hugo Boss said the “difficult” market environment in the US and Canada took a toll as lower local demand and a decline in sales generated by tourists led to a 7% decline.
Sales in Asia/Pacific, meanwhile, grew at an above-average rate, primarily thanks to higher sales in China. Adjusted for currency effects, sales in the region rose 5%. In mainland China, currency-adjusted sales increased even at a double-digit rate.
At EUR333m, operating profit (EBIT) was 4% below the prior-year level, excluding the effects of IFRS 16. This is attributable to a lower gross profit margin as well as an increase in operating expenses. The latter was primarily a result of additional investments in the group’s own retail business.
Net income slipped to EUR205m from EUR236m last year. Excluding the effects of IFRS 16, net income totalled EUR212m.
“2019 was an eventful year for Hugo Boss. Importantly, we have made further progress in implementing our strategy,” said CEO Mark Langer, “We strengthened our personalised offerings, significantly expanded our online business and increased retail sales productivity in our stores.”
Meanwhile, in a separate statement today, Hugo Boss announced the appointment of Dr Heiko Schäfer to chief operating officer (COO). In his new role, Dr Schäfer will be assuming responsibility for global product development and sourcing, own manufacturing, operations, as well as sustainability and quality management.
He has previously served as senior vice president of Adidas and was appointed CEO of the Tom Tailor Group in 2016 after serving as COO, where he was responsible for sourcing, logistics and IT.
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