Hugo Boss to Cut Rent Costs After Weak First Quarter

BERLIN, Germany — German fashion house Hugo Boss will seek to cut costs by renegotiating store rents after it reported lower-than-expected sales and profits for the first quarter and said it was hopeful for an improvement in the second half of the year.

Luxury groups including LVMH, Richemont and Burberry have posted weak first-quarter sales, hit by lower tourist spending and depressed demand in cities such as Hong Kong, prompting them to close stores and renegotiate rents.

Hugo Boss has been without a chief executive since Claus-Dietrich Lahrs stepped down in February after the share price tumbled following a profit warning on weak sales in China and the United States. It gave no update on the hunt for a successor on Tuesday.

Quarterly net profit fell 49 percent to €38.5 million (£30 million) on sales down four percent to €643 million, missing average analyst forecasts for €45.8 million and €649 million respectively.

Hugo Boss expects to make cost savings of around €50 million in 2016 by renegotiating rental agreements and will cut annual investment to between €160 million and €180 million, from €220 million last year, as it opens fewer stores.

Finance chief Mark Langer said in a statement the short-term focus was on stabilising the US business, where sales fell 16 percent adjusted for currency effects in the first quarter, as well as on increasing cost efficiency and free cash flow.

Hugo Boss said it expects an improving trend in sales and earnings, particularly in the second half, confirming its outlook for a percentage rise in currency-adjusted sales in the low single-digits, and a low double-digit percentage fall in operating profit.

Hugo Boss said a 20 percent price cut in its spring collection in China, to bring prices closer to levels in Europe, was helping demand, with volumes up 10 percent even though total sales value fell 11 percent, not counting currency effects.

By: Emma Thomasson; editor: Victoria Bryan.