Temporary store closures as a result of the global Covid-19 pandemic weighed on German luxury fashion brand Hugo Boss in the second quarter where group sales more than halved on last year.
For the three months to the end of June, group sales were down 59% to EUR275m (US$323.3m), both in reporting currency and currency-adjusted. Own retail sales decreased 58%, while wholesale revenues fell 64%, both currency-adjusted.
With about 50% of its global store network closed on average during the course of the second quarter, Hugo Boss was significantly impacted by the pandemic. This was particularly evident in Europe and the Americas – by far the company’s largest regions. In both regions, the vast majority of the group’s stores and shop-in-shops were closed from mid-March until the end of May.
From a geographical perspective, sales performance varied across regions as different markets were experiencing different stages of the pandemic. Currency-adjusted sales in Europe and the Americas declined 59% and 82%, respectively, as temporary store closures and sharp declines in tourism flows weighed on both regions. In addition, unrest and demonstrations in May and June put an additional strain on the group’s US business.
In Asia/Pacific, currency-adjusted sales were down 36%. While most of the region’s markets were also severely affected by the economic consequences of the pandemic, Hugo Boss says mainland China stood out positively, as it continued its gradual recovery that started towards the end of March. After returning to growth in May, June has seen a further acceleration with currency-adjusted sales in the market up double-digits.
Hugo Boss’s online business, however, continued to enjoy strong momentum in the second quarter with currency-adjusted growth of 74%, boosted by double-digit sales improvements across all three regions. The period from April to June marks the strongest quarterly performance out of 11 consecutive quarters with double-digit online sales growth.
Besides the severe sales decline, substantial inventory valuation effects impacted the group’s earnings development. In addition, impairment charges of EUR125m entirely related to the pandemic’s impact on the group’s retail business weighed on the operating result (EBIT). Including these charges, EBIT amounted to minus EUR250m.
When excluding those impairment charges, EBIT amounted to minus EUR124m from an EBIT of EUR80m in the year ago period.
The group’s net loss, meanwhile, was EUR186m. When excluding the impairment charges, net loss totalled EUR96m, compared to net income of EUR52m last yearr. The decline was less pronounced than that of EBIT, reflecting a tax credit as a result of the pretax loss for the second quarter.
“The second quarter was as challenging as expected. Our relentless focus on executing our measures to protect the financial stability of Hugo Boss has yielded strong cash flow generation in Q2,” says Yves Müller, spokesperson of the managing board of Hugo Boss. “It is equally encouraging to see that the momentum along our strategic growth drivers China and online has either returned quickly or further accelerated. Now, we will put all our effort behind the further recovery of our operations in order to return to top- and bottom-line growth as soon as possible.”
While Hugo Boss did not provide full-year guidance, it remains optimistic that the global retail environment will continue to gradually improve, noting this should also positively impact the group’s sales and earnings development in the second half of the year.
Retail sales trends during the second quarter have shown a sequential improvement month by month, it says, adding the this positive trend has also continued so far into the thid quarter with the group recording further improvements in its global retail operations during July.
The results come after Hugo Boss announced in June former Tommy Hilfiger boss Daniel Grieder will be its next CEO, succeeding Mark Langer who is leaving the group at the end of September. CFO Müller will will serve as the managing board’s spokesman in the interim period.
Meanwhile, Frasers Group, formerly known as Sports Direct International, recently almost doubled its stake in the group to 10.1%.