Updated a 3:59 p.m. ET on May 5
It’s all part of the plan, executives at German menswear specialist Hugo Boss were keen to reassure, after the company reported its worst quarterly results in around two years.
Over the first three months of the year, Hugo Boss sales sank 6 percent, in currency adjusted terms, to 905 million euros.
The German company’s operating result — EBIT, or earnings before interest and taxes — also nosedived, falling by 42 percent in the first quarter. Over the same period last year, EBIT totaled 61 million euros; this year it came in at 35 million euros.
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“As you can see from the [results] announcement, the first quarter was characterized by the implementation of our strategy,” Hugo Boss chief financial officer Yves Mueller said at a telephone conference revealing the results on Tuesday morning in Germany.
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Late last year, Hugo Boss unveiled a new back-to-basics, profit-optimization strategy named “Claim 5 Touchdown” after it became clear more ambitious targets were not going to be met even after several years of significant growth and a big marketing spend. The new plan, which would entail significant financial pain, meant Hugo Boss likely wouldn’t return to real growth until 2027 at the earliest, the company said.
“These measures have a temporary impact on revenue and profit. We have factored this in,” Mueller continued. “That is why from my perspective as CFO, I am satisfied with these first few months. We currently measure progress not by volume growth, but by how consistently we’re progressing…the implementation of our strategy. In this respect, the first quarter of the year was a good start.”
Additionally, despite the sales drop, Hugo Boss’ results were still slightly better than market analysts had expected. As a result, observers from the likes of the Royal Bank of Canada, Jefferies and JP Morgan praised the above-consensus results — although Deutsche Bank analyst Michael Kuhn said the numbers would be “a reality check.”
Hugo Boss shares rose 0.5 percent in trading on Tuesday.
The first-quarter decrease was driven by Hugo Boss sales in its home market of Europe, the Middle East and Africa. There, sales fell by 8 percent, in currency adjusted terms, in the German company’s biggest sales territory.
Key markets — Germany, France and the U.K. — all saw similar decreases, the company noted.
The ongoing conflict in the Middle East hadn’t directly made a huge dent in this quarter’s results, Mueller said. Business there generates only about 3 percent of total group revenues and Mueller estimated the negative impact on consumer sentiment had likely cost the company around 1 percent of its first-quarter revenues.
In terms of the impact of rising oil prices, Mueller said around half of Hugo Boss’ raw materials come from inside Europe and that rising costs of materials won’t be visible to consumers until 2027 anyway.
However, he added, “the longer this conflict lasts, the greater the risk that consumer sentiment will deteriorate further worldwide, not to mention the consequences for inflation and freight rates.”
The company was already seeing “initial signs of a decline in consumer sentiment in selected markets, as well as less international travel.”
The executive noted that Hugo Boss had closed 15 of the 50 storefronts it planned to shutter worldwide by 2028, with those initial closures mostly due to leases expiring. Hugo Boss also significantly decreased its inventories at the end of last year and plans to shrink them further this year.
“We have also become more focused in selecting our strategic partners in the wholesale sector,” Mueller added, “all of which reduces sales and, therefore, initially, profits.”
In the Americas, sales sank 5 percent in currency adjusted terms to 188 million euros. But Mueller pronounced himself pleased with that, too, as it indicated the brand’s “relative stability” and comparatively strong ongoing demand in that market.
The Asia-Pacific region was the only one where Hugo Boss saw growth, with sales there rising 1 percent in currency adjusted terms, to 123 million euros. This was thanks to a return to growth in China and growing demand in Japan.
In terms of product categories, sales of the company’s more casual brand, Hugo, fell 21 percent, in currency adjusted terms.
This less formalwear-focused category is undergoing serious renovation, Mueller explained. The selection is being streamlined, with the menswear specialist going back to basics. “We want to sharpen our product range and we want to focus more on contemporary tailoring,” Mueller told WWD. So that is also having an impact on sales, he added.
Sales of the company’s more formal offerings under the Boss label only dropped 3 percent. The latter makes up most of Hugo Boss’ business.
Later in the year, Hugo Boss will be releasing the first of its revamped womenswear, Mueller said. This is the product of a dedicated womenswear unit, a first for the company, overseen by Kerstin Dorst, formerly with Tory Burch in New York. The new womenswear should be out by November and then hitting its stride in 2027, Mueller noted.
The company confirmed guidance for the full year and predicted more pain to come: Sales revenues will fall in the mid- to high-single digits throughout the year and operating profit will decrease to between 300 million and 350 million euros.