Mar 10, 2016
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Hugo Boss to review store growth, close some China outlets

Mar 10, 2016

Germany German fashion house Hugo Boss is closing outlets in China and will review its global store network as it tries to revive its fortunes following the departure of its chief executive last month after a profit warning.

Like other upmarket fashion retailers, Hugo Boss has been hit by a slowdown in luxury spending, particularly in China.

In a strategy shift last November the German label known for its smart men's suits said it would restrict new store openings to top global locations as it worked to expand online sales.

On Thursday, it said it was going further. It will close around 20 of its 145 stores in greater China and make extensive renovations to others there. After a review of its entire store estate, it could close more outlets elsewhere and will open fewer than 20 stores worldwide, down from a net 72 last year.

That marks a turnaround from a few years ago when the fashion house went on a global expansion drive after being bought in 2007 by private equity firm Permira. Under now departed Chief Executive Claus-Dietrich Lahrs, it was opening more than 100 stores a year, driving rapid growth in both sales and its share price.

The slowdown in China's economy and a clampdown on conspicuous consumption there has since hit luxury brands hard. However, Hugo Boss said that price cuts it made recently in China to bring them closer to European levels had boosted demand in recent weeks.

It slashed prices for its spring collection by 20 percent in China, with another 10 percent due in the second half, Finance Chief Mark Langer told a news conference. A suit that costs 500 euros in Germany still costs 900 euros in China though, he said.

The company also said it plans to expand its digital activities and bring the running of its online business in Europe in-house in May to better coordinate with its stores.

Hugo Boss used to sell most of its range wholesale to outlets like department stores, but now makes more than 60 percent of sales from its own retail business.

Brands that sell from their own retail space can boost margins and maintain more control over how their garments are presented, but the strategy can leave them exposed in a downturn due to fixed rental and staff costs.

Total investment in 2016 would be below 200 million euros ($220 million), down from 220 million in 2015, but the company announced an unchanged dividend of 3.62 euros per share, helping send its shares up 3 percent by 1009 GMT (4:09 a.m. EST).

"Hugo Boss is still a healthy and growing company," Langer said.

Last month's profit warning sent Hugo Boss's share price tumbling, and the stock was still down 27 percent this year after Thursday's gain, trading at a big discount to rivals like LVMH and Burberry.

"We expect the dividend and free cash flow comments to be reassuring," said UBS analysts, after the company pledged to impose "rigorous" control of stock to ensure a rise in free cash flow.

Italy's Marzotto family is now the biggest shareholder in Hugo Boss after Permira gradually sold down its holding.

The company gave no update on the hunt for a successor to Lahrs, but said it had a long list of candidates.

Lahrs took the company more upmarket and also expanded into women's wear, a strategy Langer defended from criticism by some analysts, highlighting double-digit growth for its BOSS label for women in 2015.

$1 = 0.9107 euros

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