Hugo Boss Reports First US Growth in Two Years

BERLIN, Germany — German fashion house Hugo Boss reported better-than-expected second-quarter sales and net profit on Wednesday after a restructuring plan to close stores and cut prices bore fruit and demand picked up in China and the United States.

After a string of profit warnings and the departure of its chief executive, Hugo Boss has been slashing prices in China to bring them closer to European and US levels, making efforts to appeal to younger customers and closing loss-making stores.

"Our strategic realignment is beginning to take effect... We made considerable headway in the United States and in online business in particular," Mark Langer, the former finance chief who took over as chief executive last year, said in a statement.

Sales rose 2 percent to €636 million ($752.1 million), while net profit jumped fivefold to €57.6 million, beating average analyst forecasts for €619 million and €53 million respectively.

The company, known for its smart men's suits, said the US business had grown for the first time in two years, with a 2 percent rise in sales, while sales jumped 14 percent in China.

A recovery in tourism in Europe and stronger Chinese consumption are expected to lead a rebound in the luxury sector this year, the Bain consultancy predicted in May, with players like Burberry and Hermès also reporting better demand in China.

Hugo Boss said the Spring/Summer 2018 collections for its revamped two core brands BOSS and HUGO had been well received at recent fashion shows in Florence and New York, with particularly strong demand for its athleisure and casual wear.

That helps underline its goal to return to growth of sales and earnings in 2018, while the company said it assumes sales will grow more strongly than the rest of the market from 2019 and beyond and the operating margin will rise again.

Hugo Boss confirmed its outlook for stable sales for 2017 and a low double-digit percentage increase in net income.

It trimmed its capital expenditure target to between €130 million and €150 million from a previous range of €150 million to €170 million, and lifted its target for free cash flow to around €250 million from a previous expectation for around €220 million.

By Emma Thomasson; editors: by Edward Taylor and Gopakumar Warrier.