Hugo Boss’ (BOSSY) Q3 2016 Earnings Call

Mark J. T. Thompson – President, Chief Executive Officer & Director

A tough market environment globally for the apparel industry

“Hugo Boss continues to operate in a challenging market environment. In Europe, in particular, trends in the premium apparel industry continued to soften. The US market remained under pressure and highly promotional. And while the Chinese mainland has started recovering somewhat, other Asian markets still face considerable challenges industrywide. Affected by this difficult market backdrop, group sales were down 4% in euro terms, or 2% on a currency adjusted basis in the first nine months.”

Weak performance in Europe

“In Europe, performance weakened in the last three months. Third-quarter revenues were down 2%. We attribute this to the following factors; first, we suffered from weak demand in August and September, and particularly in key European markets such as Germany, France and Spain…Second, tourism has turned from a significant tailwind in 2015 into a headwind in 2016. The UK market is the only exception in this regard. However, it was just a low double-digit share of our business there generated with tourists. The demand increase related to the pound devaluation only had a limited effect on our business. And third, the region’s wholesale business suffered from negative timing effects in the quarter.”

The British pound devaluation affected margins

“At 64.7%, gross margin was virtually the same as in the prior year. In addition to a positive channel mix effect, we reduced rebates in all distribution channels. On the negative side, the devaluation of the British pound caused an adverse translation effect. Price changes however, were not a swing factor in the quarter any longer”

Cost savings are progressing well

“…overall we were pleased with our ability to adjust cost savings also based on some very tough negotiations with landlords, which clearly have also noticed our determination to walk away and basically call and discontinue operations that have proven to be not successful for us.”

On comp store sales…

“On a comparable store basis, revenues declined by 7%. In the third quarter comp store sales performance improved gradually to a negative 6%. However, all regions continued to perform in negative territory.”

Increased mobile device traffic diluting conversion rates

“…the steep increase of traffic coming from mobile devices is having a negative impact on sales performance at the moment as it dilutes conversion rates. We are addressing this in multiple ways; most importantly we focus on improving the mobile website check-out channel, where we lose far too many customers at the moment.”