Hugo Boss store closures have weighed on sales

Hugo Boss' store closures have weighed on sales

German luxury fashion brand Hugo Boss has moved to a loss in its first-quarter as global store closures due to the coronavirus (Covid-19) pandemic weighed on sales.

For the three months to the end of March, currency-adjusted group sales were down 17% to EUR555m (US$602.4m).

Despite a "very encouraging" start to the new year, the global spread of the coronavirus led to a "significant" impact on the business, with sales declines in all regions.

In Asia/Pacific, the effects were noticeable from late January, and currency-adjusted sales were down 31% in the quarter. Declines in Europe and the Americas were less pronounced at 14% and 17%, respectively. In both regions, the increased spread of the virus only began around one month later.

Hugo Boss's online business, however, continued to enjoy strong momentum, with currency-adjusted growth of 39%. The first three months of 2020 marked the tenth consecutive quarter of strong double-digit growth for the business.

The double-digit sales declines, however, weighed on earnings and the company recorded a net loss of EUR18m for the quarter, from earnings of EUR37m a year earlier. EBIT amounted to minus EUR14m from an EBIT of EUR57m in the year ago period.

Unlike in Europe and the Americas, where business is still significantly impacted as a result of the pandemic and the continuing closures of points-of-sale, Hugo Boss says it is seeing steady improvements in mainland China. Since the end of March all own retail stores and shop-in-shops there have been reopened.

"The Covid-19 pandemic is an unprecedented exceptional situation for our company," says CEO Mark Langer. "Protecting our employees, customers, and business partners is our top priority. We have done our utmost to ensure the financial flexibility and stability of our company."

In order to limit the increase in trade net working capital, Hugo Boss is working with its suppliers to reduce the inflow of inventories. The company has also adjusted its own production level to account for lower demand. In total, Hugo Boss aims at reducing the inventory inflow in fiscal year 2020 by at least EUR200m versus its initial plan.

Looking ahead, the company says the temporary store closures will weigh on group sales and earnings for the full year, but the uncertainty of the development of the pandemic means it cannot provide a reliable forecast for 2020.

For the second quarter, Hugo Boss is forecasting both sales and earnings declines to be more pronounced than the first, primarily as a result of the continued store closures in Europe and the Americas, which contribute around 85% of group sales.

In total, the company hence expects currency-adjusted group sales to decrease by at least 50% in the second quarter.