Hugo Boss stays strong amid tough China, U.S. markets

By Linda Pasquini

(Reuters) -Hugo Boss (ETR:) has raised its sales and profit outlook after reporting a 20% jump in second-quarter revenues, as a brand revamp and marketing push helped the German fashion house overcome sluggish industry-wide demand in China and the U.S.

The premium fashion group has stayed resilient in the slowing U.S. and European markets while boosting sales in Asia despite China having a slower recovery than expected.

Shares in luxury goods companies have come under pressure due to worries over the pace of China’s post-pandemic rebound.

But Hugo Boss saw currency-adjusted sales in China increase 56% from a year earlier, while the business in EMEA and the Americas benefited from a pick-up in tourism.

The retailer said it opened 17 new Boss stores in the first half, with six of those in Asia. Hugo Boss CEO Daniel Grieder said the company will open its first larger store in China’s fifth biggest city Guangzhou in the fourth quarter.

China still offers strategic potential for Hugo Boss, Grieder told reporters on a call.

Hugo Boss shares, which have gained 32% this year, fell slightly, down 1% by 0740 GMT on Wednesday.

Deutsche Bank analysts said the market was already expecting a guidance increase, and said higher working capital “will be seen skeptically” given the retailer is battling high inventories.

Trade net working capital is expected to increase to between 18% and 19%, Hugo Boss said, up from prior guidance of 17%, due to inventories which jumped 53% in currency-adjusted terms over the first half.

Retailers around the world have been struggling with surplus stocks of clothing and footwear after last year’s supply chain disruptions.

Hugo Boss said it expects a “gradual” normalisation of inventories to begin in the second half and is confident of bringing stocks down to less than 20% of group sales by 2025, from 56.6% at end-June.

Group quarterly sales grew to 1.03 billion euros ($1.13 billion) on a currency-adjusted basis, from 878 million a year earlier, broadly in line with analysts’ expectations as both the Boss and Hugo brands gained market share especially among younger shoppers.

The company expects annual sales to grow 12% to 15% and reach 4.1 billion to 4.2 billion euros, compared with its previous forecast for about 10% growth to 4 billion euros.

Hugo Boss sees 2023 operating profit growing by 20%-25% to a level of 400 million euros to 420 million euros, versus its prior range of 370 million to 400 million euros.

($1 = 0.9097 euros)