Despite tough Chinese and U.S. markets, Hugo Boss remains strong

Hugo Boss (BOSSn.DE) has increased its sales and profit projections after posting a 20% increase in second-quarter revenues as a brand refresh and marketing campaign helped the German fashion company overcome weak industry-wide demand in China and the U.S.

Even though China’s economic recovery has been slower than anticipated, the luxury fashion firm has maintained its strength in the sluggish U.S. and European markets while increasing sales in Asia.

Because of concerns about how quickly China will recover from the pandemic, shares of luxury goods businesses have fallen.

However, Hugo Boss witnessed a 56% year-over-year growth in currency-adjusted sales in China, while a rebound in tourism helped the company’s operations in EMEA and the Americas.

Six of the 17 new Boss outlets, according to the firm, were opened in Asia. The fourth quarter will see the opening of Hugo Boss’ first larger store in Guangzhou, China’s fifth-largest city, according to CEO Daniel Grieder.

Hugo Boss still has strategic potential in China, Grieder told reporters over the phone.

Higher working capital “will be seen skeptically” given that the retailer is struggling with excessive inventories, according to Deutsche Bank analysts who claimed the market had previously anticipated an increase in guidance.

Hugo Boss stated that due to inventories, which increased 53% in currency-adjusted terms over the first half, trade net working capital is anticipated to rise to between 18% and 19%, up from prior expectations of 17%.

Since last year’s supply chain problems, retailers all around the world have been battling excess clothes and footwear inventories.

Hugo Boss stated that it anticipates a “gradual” normalisation of inventories to start in the second half and is optimistic that by 2025, stocks will have decreased from 56.6% of group sales at the end of June to less than 20%.

On a currency-adjusted basis, group quarterly sales increased to 1.03 billion euros ($1.13 billion) from 878 million a year earlier, essentially meeting analysts’ estimates as both the Boss and Hugo brands gained market share, particularly among younger consumers.

The company revised its earlier expectation for annual revenue growth to a range of 12% to 15%, or 4.1 to 4.2 billion to 4 billion euros.

In comparison to its former range of 370 million to 400 million euros, Hugo Boss anticipates an operational profit growth of 20% to 25% in 2023, reaching a level of 400 million to 420 million euros.