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Hugo Boss to close more stores as cost cuts bear fruit

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German fashion house Hugo Boss beat forecasts for quarterly operating profit on Friday and new CEO Mark Langer said he would close around 20 more stores as a cost cutting drive appears to be bearing fruit.

[BERLIN] German fashion house Hugo Boss beat forecasts for quarterly operating profit on Friday and new CEO Mark Langer said he would close around 20 more stores as a cost cutting drive appears to be bearing fruit.

The company, known for its sharp men's suits, cut its full-year sales forecast. But its shares jumped more than 6 per cent as analysts saw signs of an improvement for a stock which has underperformed the luxury sector to fall 30 per cent this year.

"Second-quarter results were surprisingly well above expectations ... we see limited downside from here," said Citi analyst Thomas Chauvet, who rates the stock "buy".

Adjusted operating earnings fell 13 per cent to 108 million euros (S$162.14 million) in the second quarter on sales down 4 per cent to 622 million, ahead of analysts' average forecasts for 88 million and 611 million respectively. Analysts said better stock management helped operating profit.

Net profit was hit by special items of 57 million mainly due to costs from closing stores.

"To return to profitable growth again in the medium term, we have made decisions that are painful to begin with," Mr Langer said. "The market environment will remain difficult for the foreseeable future."

The luxury goods industry is going through its most severe slowdown in seven years and several groups and brands have seen their profitability hit, including Burberry, Cartier owner Richemont and Swatch, which issued a profit warning last month.

Former finance chief Mr Langer was formally appointed chief executive in May after holding the fort following the departure of Claus-Dietrich Lahrs in February as sales slumped in the United States and China.

Under Mr Lahrs, the company went more upmarket, opened more than 400 stores around the world and put a bigger focus on womenswear.

Mr Langer had already announced plans to cut costs by renegotiating rents, shutting stores and shifting marketing spending back to its core menswear business Hugo Boss, which announced in March it would close around 20 of its 145 stores in Greater China, said it would shut another 20 or so loss-making stores in the next 18 months and focus in the United States on selling the brand in high-quality outlets to try to minimise discounting.

Mr Langer said he expected the closure of stores, which have diluted the operating margin by 60 basis points in the past year, to have a "strongly positive effect" on profits in 2017 and beyond.

Hugo Boss now expects full-year currency adjusted sales to fall between zero and 3 per cent, compared with a previous outlook for a rise. It expects operating earnings before special items to fall 17 to 23 per cent, with analysts already predicting a 17 per cent drop.

At 0805 GMT, Hugo Boss shares were up 6.3 per cent at 55.55 euros, after hitting a six-week high of 55.75 euros.

REUTERS