German luxury brand Hugo Boss has warned of possible delays in achieving its ambitious 2025 sales target due to tepid consumer demand, especially in China. The great challenges of the Chinese market punish Hugo Boss’s profits.
The company’s third quarter earnings report showed slight earnings above expectations of the market, but also highlighted the continuing challenges in the Chinese market. The company’s share price fell more than 4% to 41.2 euros in Frankfurt, erasing the previous week’s gains.
So far this year, Hugo Boss shares They are down 39%making it one of the worst performers in the Euro-Stoxx 600 index and underscoring the continued growth challenges for European luxury brand companies amid China’s economic slowdown.
Modest revenue growth due to weak demand
Hugo Boss’s revenue in the third quarter amounted to €1.03 billion, a modest year-on-year increase of 1% adjusted for exchange rates. The growth was observed in the European markets and American, with sales increasing by 1% in the EMEA region and 4% in the Americas.
In particular, the improved results in the EMEA region mainly reflect improving income in Germanywhich offsets the downward trend in sales in France and the United Kingdom.
However, sales in Asia-Pacific fell 7%, after a 4% decline in the previous quarter. The company attributed these results to the “continued macroeconomic and geopolitical uncertainty“which affects global demand, especially in China, where low consumer interest undermined results.
Challenges to profit margin and operating income
Hugo Boss’s profit margin fell to 60.2%, 50 basis points less than the previous year. Although sourcing helped offset rising freight costs, the overall promotional environment and weaker regional sales contributed to the decrease in profit margin.
Earnings before interest and taxes (EBIT) decreased by 7%up to 95 million euros. However, cost management efforts allowed Hugo Boss to exceed analyst expectations of €90 million.
Despite the reduction, Hugo Boss foresees further efficiency improvements in supplyciting “more favorable product costs, offsetting increased global freight rates, adverse channel and regional mix effects, as well as an overall promotional environment.”
Strategic objective in question
Launched in 2021, Hugo Boss’ CLAIM 5 strategy aims to drive market relevance, digital innovation and sustainability to accelerate growth and strengthen your brands by 2025with the aim of doubling sales to 4,000 million euros.
In June, Hugo Boss raised this target to 5 billion euros, with an expected profit of 600 million euros and an accumulated free cash flow of around €2.5 billion between 2021 and 2025.
However, the company has warned that achieving these revenue and profit growth targets by 2025 may be unviable due to the demand weakness in China, according to CFO Yves Mueller. The company remains focused on achieving its goals, but is unsure of the exact timeline.
Outlook for 2024
In its outlook for 2024, Hugo Boss predicts that the group’s sales increase between 1% and 4%standing between 4,200 and 4,350 million euros, since the impact of currencies may have a slight negative effect on income. The German company continues to forecast profits of between 350 and 430 million euros.
CEO Daniel Grieder commented: “In the third quarter, Hugo Boss achieved solid revenue improvements despite weak consumer confidence.
“This is a clear testament to the power of Boss and Hugo, which we have built over the past few years through the consistent execution of our CLAIM 5 strategy“he added.
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