Hugo Boss sees recovery elsewhere after Hong Kong hit

Hugo Boss expects sales and operating profit to recover in the fourth quarter, helped by more modern stores and growth in mainland China and ecommerce, after the German fashion house reported falling sales in the United States and Hong Kong.

Last month, Hugo Boss cut its 2019 earnings forecast and reported preliminary third quarter results that were below its expectations. It confirmed them on Tuesday.

Chief Executive Mark Langer said he expected a “significant” increase in operating profit in the fourth quarter, citing expansion in mainland China and the booming online business, which grew by 36% in the third quarter.

Ecommerce was powered by improvements to the Hugo Boss website and expansion into Scandinavia and Ireland, and Langer said he expected the strong online momentum to continue into the fourth quarter.

Shares in Hugo Boss, which are down almost 40% in the last year, were flat at 0913 GMT.

Hugo Boss also expects to reap the fruits from investment in sprucing up its stores, like its flagship on the Champs Elysees in Paris, where Langer said sales had been very strong in October, as well as recent fashion shows in Milan and Shanghai.

Known for its smart suits, the company’s strategy of introducing more casual and sportswear styles to appeal to a younger audience has been paying off, with third-quarter sales of its trendier Hugo label rising a currency-adjusted 6%.

However, sales fell 8% in the Americas, which Hugo Boss blamed on a fall in demand in the United States from locals and tourists, as well as a decline in the wholesale channel as it sells more garments online.

Overall, the group’s own retail business, which includes ecommerce, saw currency-adjusted sales rise 3% in the third quarter, while the wholesale business fell 5%.

Sales growth slowed to 2% in Asia due to a “significant double-digit” sales decline in Hong Kong, which usually accounts for a quarter of its greater China sales, partially offset by continued strong momentum on the mainland.

Thriving demand in mainland China also helped luxury handbag maker Hermes offset a sales growth slowdown in Hong Kong in the third quarter, and the company said that the momentum had carried into October.

As unrest escalates in Hong Kong, Langer said he did not expect any recovery soon, noting stores had been forced to close on important weekend shopping days, prompting Hugo Boss to shift stock from Hong Kong to other Asian markets.