German fashion retailer, Hugo Boss AG, has reported the biggest decline in quarterly profit in the last six years. The retailer reported lower-than-expected sales and profits for the first quarter but said it was hopeful for an improvement in the second half of the year as it takes steps to stop sliding sales in the United States.
Now, the company has pledged to trim its store network to cut costs. The retailer had already announced in March 2016 that it would close roughly 20 stores in China.
The company will decide within months on which shops it may shut, and will save an additional 50 million euros ($58 million) this year by reducing costs and rents, Hugo Boss said in a statement on Tuesday.
According to a report in The Economic Times: Quarterly net profit fell 49 per cent to €38.5 million euros ($44.39 million). Hugo Boss’s group revenue fell by 4 per cent to €643m (£507m) in the first quarter of 2016, missing average analyst forecasts for €45.8 million and €649 million respectively. Analysts say the reason for the downturn is most likely difficult trading conditions in the Americas and Asia Pacific markets, which put pressure on sales.
Womenswear was hardest hit, falling by 4 per cent, compared with 2 per cent in local currencies for menswear.
Hugo Boss’s earnings before interest, taxes, depreciation and amortization and other items declined 29 percent to 93.5 million euros ($108 million) in the first quarter, the Metzingen, Germany-based company said. That missed the lowest analyst estimate compiled by Bloomberg, which was 95 million euros.
Hugo Boss said it expected to make cost savings of around 50 million euros in 2016 by renegotiating rental agreements and would cut annual investment to between 160 million and 180 million euros, down from 220 million last year.
Bloomberg says the Hugo Boss stock, which lost half its value in the past year, fell 1.7 per cent to 55.17 euros at 11:09 a.m. in Frankfurt.
The embattled German fashion retailer is paring back the network which former Chief Executive Officer Claus-Dietrich Lahrs expanded until rampant cost increases and discounts led him to resign, according to a Bloomberg report.
Lahrs stepped down in February after the share price tumbled following a profit warning triggered by a steep fall in sales in the US and China.
Meanwhile, the CFO of the company, Mark Langer, reassured investors and patrons alike that Hugo Boss expects improvement in sales and earnings this year, especially in the second half. Not just that, he said that though the focus was back on menswear – which accounts for 90 per cent of Hugo Boss sales – the company has no intention of walking away from the womenswear segment.
The German fashion label is best known for men’s apparel such as suits and jackets.
Hugo Boss operated 1,128 retail outlets itself as of the end of March, including 438 freestanding company stores. The closures could affect both categories, the company said in a statement.