Hugo Boss working with suppliers to reduce inventories

Worldwide
Published:  07 May, 2020
Picture: Hugo Boss

The Germany headquartered fashion label has reported a decline in sales, profitability, and cash flow for the first three months of 2020.

Hugo Boss has posted a 16% decline in sales in the first quarter of the year to €555 million, compared with €664 million in the same quarter of 2019, corresponding to a currency-adjusted decline of 17%. The company said that, after a very encouraging start to the new year, the global spread of the coronavirus led to a significant impact on the business. In the Asia/Pacific region, with the effects noticeable from late January, and currency-adjusted sales were down 31%. The decline in currency-adjusted sales in Europe and the Americas was less pronounced at 14% and 17%, respectively, according to Hugo Boss, as in both regions the increased spread of the virus only began around one month later.

While the vast majority of the company’s own store network was affected by temporary closures in the first quarter, the online business continued to enjoy strong momentum, with a currency-adjusted growth of 39%, while the first three months of 2020 marked the tenth consecutive quarter of strong double-digit growth for the online platform. In all, retail sales decreased 17% in the first quarter, while wholesale revenues declined 18%, both currency-adjusted. The double-digit sales decline significantly weighed on earnings in the quarter, with the operating result (EBIT) totalling €14 million, compared with €57 million in the same period of 2019. Hugo Boss said it is currently seeing steady improvements in mainland China; since the end of March all owned retail stores and shop-in-shops have been reopened in the country, with sales in April around 15% to 20% below the prior year level.

The company said it has initiated comprehensive measures with a total volume of around €600 million to secure its free cash flow. It is also targeting additional cost savings of at least €150 million over the course of the year, with all non-business-critical investments being postponed, in particular, planned renovations and openings of retail stores are suspended until further notice. Hugo Boss is also working with suppliers to reduce the inflow of inventories, while adjusting its own production level to account for the currently lower demand. In total, the German label said it aims to reduce the inventory inflow in fiscal year 2020 by at least €200 million against its initial plan.

Hugo Boss expects both sales and earnings declines in the second quarter of 2020 to be more pronounced than those recorded in the first quarter, mainly as a result of the continuing closures of the Group’s own stores, as well as points-of sale at important partners in Europe and the Americas; overall, these two regions represent around 85% of Group sales. The company expects currency-adjusted Group sales to decrease by at least 50% in the second quarter, but remains confident that from the third quarter on, the retail environment will gradually improve, resulting in a positive impact on the Group’s sales and earnings development in the second half of the year.