Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hugo Boss AG (BOSSY, Financial) managed to limit the sales decline to 1% in Q2, outperforming the broader industry.
- The CLAIM 5 strategy has driven significant growth, achieving the initial sales target of EUR4 billion last year.
- The company has successfully increased its gross margin by 50 basis points in Q2 and 30 basis points in H1, reaching 62.1%.
- Hugo Boss AG (BOSSY) has seen a 30% year-over-year growth in its global member base, reaching almost 10 million registered customers.
- The company has reduced inventories by 7% year-over-year, highlighting effective inventory management.
Negative Points
- EBIT decreased by 42% to EUR70 million in Q2, impacted by higher operating expenses.
- Sales in the EMEA region decreased by 2% in Q2, with weak retail traffic in the UK and a slowdown in Continental Europe.
- The Asia Pacific region saw a 4% sales decline in Q2, primarily due to decreased sales in China.
- Digital business sales were down 4% in Q2, despite a 3% growth in the digital flagship hugoboss.com.
- The company has taken a conservative view on consumer sentiment for the remainder of the year, expecting only a 1% to 4% increase in Group sales for 2024.
Q & A Highlights
Q: Can you provide an update on the cadence of trading through Q2 in your DTC business and how it has developed so far early in Q3? Also, how has your outlook for delivering your 2025 guidance changed given the cut in 2024 guidance?
A: The current trends are more or less on the same level as in Q2. We are fully determined to focus on 2024, taking and accelerating our cost measures, which are already bearing fruit from a gross margin perspective due to sourcing efficiencies. We are reducing cost increase rates and will further decrease them in the second half of this year. (Yves Mueller, CFO and COO)
Q: Could you quantify the additional savings expected from the acceleration of the cost efficiency program in the second half versus what was originally planned? Also, do you think there's a need to reduce prices to reengage the consumer and drive the top line?
A: We are very determined to get our costs under control, focusing on those we can influence, especially sourcing. We aim to reduce fixed cost increases to low single digits. Regarding pricing, our brand looks strong, and we are not considering any price reductions. (Yves Mueller, CFO and COO)
Q: Could you comment on the promotional environment in July and what your gross margin guidance for the year embeds for promotional headwinds in the second half? Also, what does your 2024 guidance assume for brick-and-mortar retail sales in the second half?
A: We expect the promotional environment to remain elevated in the second half of the year, which is included in our assumptions. We are benefiting from sourcing efficiencies, which will help us achieve a gross margin between 62% and 64%. We have taken a prudent approach for brick-and-mortar retail sales, not expecting a pickup in the second half. (Yves Mueller, CFO and COO)
Q: Is the performance gap between wholesale and retail just a function of different regional focus, or is there an outperformance of wholesale versus retail in the same regions? Also, what is your view on China, and do you see a scenario where you might defocus from China?
A: The wholesale performance is stronger due to higher footfall in multi-brand environments. In China, the consumer sentiment is down, but we see strategic opportunities mid and long term. We remain focused on the region despite the current challenges. (Yves Mueller, CFO and COO)
Q: Could you provide details on the bricks-and-mortar wholesale business on a regional basis, particularly in Europe and the Americas? Also, how has the share of never-out-of-stock products within the inventory line developed?
A: In the Americas, we are gaining more doors with existing partners like Nordstrom and Dillards. In Europe, the performance is affected by department store issues. Regarding inventories, there is a seasonality effect, but everything is under control, and the aging looks healthy. (Yves Mueller, CFO and COO)
Q: What is the sales growth needed to achieve operating leverage at present? Can you make costs more variable to lower the hurdle for operating leverage going forward?
A: A low single-digit increase is needed to generate operating leverage. We are adjusting our sales staff to reduced footfall and optimizing our cost structure to ensure improvements for the next years. (Yves Mueller, CFO and COO)
Q: Are you canceling or just postponing some CapEx projects, and what is the outlook for next year's CapEx? Also, can you provide details on the share of freights between air, boat, and road, and where do you see the biggest pressure on freight rates?
A: We are optimizing CapEx efficiency and prioritizing investments in best and Halo stores. For next year, CapEx will normalize to 4%-6% of sales. We are reducing airfreight and focusing more on ship and truck modes to compensate for elevated freight rates. (Yves Mueller, CFO and COO)
Q: How is the order book for wholesale looking for the second half of the year? Also, are the OpEx efficiencies expected in the second half a good baseline for FY25?
A: The order book is robust, with mid-to-high single-digit growth expected. The cost measures taken will provide tailwinds for the next year, ensuring improvements in the bottom line. (Yves Mueller, CFO and COO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
