Hugo Boss profit undershoots in Q2, but American growth is strong

Hugo Boss disappointed on Thursday with the German upscale fashion giant reporting Q2 operating profit below market expectations. That followed it cutting its full-year sales and earnings forecasts last month due to consumer demand remaining sluggish.

Analysts on average had expected it to make €81.9 million in Q2 earnings before interest and tax (EBIT) but the figure came in at €70 million, down 42% year on year.

The company itself remained relatively upbeat and said in its results report that it saw “further revenue improvements in [the] first half despite [a] challenging market environment driving additional market shares for Boss and Hugo”.

But there’s no getting away from the fact that while revenue was up 3% in H1, it was down 1% in Q2.

On the plus side, growth continued in physical store wholesale in both H1 (+7%) and Q2 (+5%), as well as on hugoboss.com (H1 +3%, Q2 +3%). But physical retail revenues in H1 were flat and in Q2 they dropped 2%.

Yet it also saw “robust” gross margin improvements as it realised “substantial efficiency gains” in its global sourcing activities with H1 up by 30 bps and Q2 up an even better 50 bps.

But “overall market uncertainty and higher operating expenses” were what weighed on its EBIT figure in both the first half (when EBIT was €139 million) and Q2 with the aforementioned €70 million.

Tough times in Q2

Looking more closely at the quaterly details, the company said “the persistent macroeconomic and geopolitical challenges dampened global consumer demand, with retail sentiment in key markets such as China and the UK particularly affected”. 

While it was “able to maintain its relative outperformance, the overall muted consumer sentiment inevitably impacted the financial performance”.

It had reported earlier that group sales were down to €1.015 billion from €1.026 billion a year earlier, a decline of 1%. But at least those revenues continue to significantly exceed 2019 levels by more than 50% in Q2. This reflected “the successful strongly elevated brand momentum and led to substantial market share gains for Boss and Hugo”.

And even with the overall softer consumer sentiment being an issue, both brands “maintained their strong engagement with consumers”. Driven by dedicated 360-degree brand campaigns, plus new collaborations such as the one with David Beckham, and a strong presence at key sporting events, both labels “were able to further increase visibility globally. This resulted in a notable uptick in engagement rates on social media, where both brands carried on their momentum gained in recent years”.

Yet currency-adjusted revenues for Boss Menswear were still 2% below the prior-year level in Q2, although there was greater success for Boss Womenswear (which rose by 2% currency-adjusted) and Hugo (up 3%, helped by its new, denim-focused brand line Hugo Blue).

The company also said that growth in the Americas partly compensated for declines in EMEA and Asia/Pacific. In EMEA, currency-adjusted sales fell 2%, dragged down particularly by the UK, but also by Germany and France. 

In the Americas, it continued its growth trajectory in the second quarter, with currency-adjusted sales up 5%.

Those sales in Asia/Pacific fell 4% as China proved an ongoing problem.

But the company remains upbeat for the second half with its new program, Hugo Boss XP, seeing 30% more people signing up to its customer loyalty offer, and full-year sales expected to grow between 1% and 4%. 

Various brand, product, and sales initiatives should also support growth, while it talked of a “robust wholesale order intake for [the] upcoming Winter 2024 and Spring 2025 seasons”.

A new Boss campaign featuring David Beckham and Naomi Campbell will launch at the end of August to help drive interest.

It all means that the “bottom-line performance [is] set to accelerate in H2 2024” and full-year EBIT is forecast to come in between €350 million and €430 million.

CEO Daniel Grieder said its strategy has driven “superior, high-quality top-line growth” for three years but “the global market environment deteriorated substantially in the first half. The weakening consumer sentiment in most markets led to a rapid slowdown in growth across the entire industry, which we could not completely escape from. And while the macro environment is likely to remain difficult for the time being, we are steadfast in our commitment to continue driving above-trend growth, capturing further market share, and focusing even more on operational and organisational productivity”.

And he talked of cost cuts, which appear to be a big focus for now: “Our confidence in the immense potential of our two brands remains strong, as do the long-term growth opportunities for our business. [But] at the same time, we adapt to the current market environment and accelerate our cost discipline from here on. This includes leveraging our global sourcing activities, which has already translated into solid gross margin improvements in the first half of 2024. We have also taken additional measures to enhance efficiency and effectiveness across our business. This includes removing spend in non-strategic areas of the business, with particular emphasis on sales, marketing, and administration.”