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Hugo Boss drops profit goal on China factor
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German fashion house Hugo Boss has abandoned its 2015 profit target, joining the ranks of luxury goods companies warning of slowing sales growth in China.
China has been the engine of the luxury goods industry in recent years, but a weakening in economic growth there, coupled with a crackdown on bribery, has tempered demand this year.
French spirits group Remy Cointreau also reported a slowdown in Chinese demand yesterday, following similarly cautious comments from upmarket fashion groups such as LVMH and Burberry.
“A particular concern is China,” Hugo Boss Chief Executive Claus-Dietrich Lahrs told investors at an event in Hong Kong, adding that there was little sign of the country returning to the double-digit percentage sales growth of recent years.
Analysts estimate luxury industry sales will rise around 4 percent in China this year, Lahrs said.
The company, best known for its men’s suits, said it was keeping a target to reach sales of 3 billion euros (US$4.1 billion) in 2015, but that it would no longer be able to reach a 25 percent EBITDA margin — earnings before interest, tax, depreciation and amortization as a percentage of sales.
That means it will miss a 2015 EBITDA target of 750 million euros.
“We are clearly committed to a 25 percent EBITDA margin target but this will happen after 2015, and not in 2015,” Lahrs said, adding that global economic growth rates had turned out weaker than expected compared with when the group set its targets in 2011.
Many analysts had been skeptical of the 2015 targets, forecasting on average sales of 2.9 billion euros and an EBITDA margin of 23.7 percent, according to Thomson Reuters Starmine.
The group reported a margin of 22.6 percent in 2012.
While Hugo Boss did not give a new time frame for the margin target, Berenberg analyst Anna Patrice said she thought it would be delayed by only a couple of years.
“And if there is a considerable pickup in Europe, then the company will be close to 25 percent already in 2015,” she said.
As well as weaker demand in China, Huge Boss has also been grappling to refurbish a network of old stores in the country taken over from franchise partners.
To compensate for weak markets and take control of the way its clothes are sold, Hugo Boss has been moving from selling its products via wholesale partners such as department stores to setting up its own shops — another industry-wide trend.
This strategy, which involves opening around 50 shops a year, has helped hold up sales during the economic downturn in Europe, Chief Financial Officer Mark Langer said.
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