Published : 1 month ago, on 05/11/2024

By Linda Pasquini and Ozan Ergenay

(Reuters) –Hugo Boss‘ on Tuesday reported that its third-quarter operating profit slightly exceeded expectations, but said it wouldn’t reach its revenue and profit growth targets for 2025 amid tepid demand, sending shares lower in morning trading.

Hugo Boss had warned in March that it might need to delay its 2025 revenue target of 5 billion euros, but had still expected operating profit margin of at least 12% in the period.

While confirming the company still plans to reach its targets, it was not clear when this would happen, Chief Financial Officer Yves Mueller said on a media call.

Shares fell 5% to 40.85 euros at 1101 GMT.

Quarterly earnings before interest and tax (EBIT) were down 7% on the year at 95 million euros ($103.3 million), but above analysts’ estimate of 90 million euros in a company-provided poll, helped by cost management, Hugo Boss said.

We think the beat is actually not the best of quality,” analysts at J.P. Morgan wrote in a note to clients, flagging a softer-than-expected gross margin.

Gross margin declined to 60.2% from 60.7% a year earlier, below analysts expectations of 61.4%, dragged by a rise in global freight rates and widespread discounts and promotions in the industry.

Despite reduced inventory, the company still needs to discount its products to lure cautious customers, Mueller said.

“Now it is more demand-induced. Consumers expect you to sell at a discount,” Mueller said.

After a 2022 brand revamp boosted its resilience last year, the upmarket fashion label has been grappling with weakening consumer demand despite higher investment in marketing and production capacity in recent months.

Currency-adjusted sales were up 1% at 1.029 billion euros during the three months, in line with market expectations of 1.023 billion euros.

“Particularly in China, the overall market environment was affected by persistent subdued consumer demand,” the company said in a statement.

Quarterly currency-adjusted sales in its third-biggest market, Asia-Pacific, fell 7% to 110 million euros, but increased 1% in the Europe, Middle East and Africa, and 4% in the Americas, helped by improvements in Germany and in the United States. Britain and France remained weak.

Hugo Boss said it continued to focus on cost control, especially around sourcing, to help profitability into the fourth quarter. It maintained its full-year sales and earnings forecasts after slashing them earlier this year.

($1 = 0.9193 euros)

(Reporting by Linda Pasquini and Ozan Ergenay in Gdansk; Editing by Milla Nissi, Kirsten Donovan and Bernadette Baum)