The Germany luxury fashion house HUGO BOSS reported operating profit in the fourth quarter.
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“For HUGO BOSS, 2020 was undoubtedly a challenging year. I am proud that we have managed to overcome the many challenges of the pandemic, ending the year with a positive free cash flow,” says Yves Müller, Spokesperson of the Managing Board of HUGO BOSS AG.
“We have made significant progress along the execution of our strategic initiatives – especially in the important online business, and in China. Although the pandemic continues to have a severe impact on our business in the short term, I am highly confident when it comes to the further recovery of our business in the course of the year. We will continue to leverage the global trend of casualization,” continues Müller.
In 2020, business of HUGO BOSS has been significantly impacted by the COVID-19 pandemic. Global lockdowns led to widespread temporary store closures. In addition, large-scale restrictions on public life including extensive social distancing measures as well as international travel restrictions put a significant strain on the Group’s operational and financial performance.
Also in the important final quarter of fiscal year 2020, the negative implications of the pandemic had a significant impact on the business of HUGO BOSS. Particularly in Europe, by far the Group’s largest region, widespread temporary store closures in light of persisting lockdowns weighed on the Group’s sales development. On the other hand, business in the Americas and in Asia/Pacific was able to continue its gradual recovery also in the fourth quarter. While sequential improvements in the important U.S. market supported overall sales development in the Americas, sales in Asia/Pacific came in only slightly below the prior year as mainland China successfully continued its strong double-digit growth trajectory. Overall, in the fourth quarter of 2020, currency-adjusted sales for HUGO BOSS decreased by 26%. This corresponds to a sales decline of 29% in Group currency to US$698 million.
Despite the significant sales decrease, HUGO BOSS was able to record a positive EBIT of US$15.6 million in the fourth quarter. This mainly reflects the Company’s tight cost control as well as the consistent execution of expense-reduction measures initiated at an early stage, both having a positive effect on EBIT.
Overall, HUGO BOSS recorded a currency-adjusted sales decline of 31% in fiscal year 2020. In Group currency, sales decreased by 33% to US$2,331 million (2019: US$3,456 million). The negative implications of the pandemic became particularly evident in Europe and the Americas. In Asia, however, the swift recovery of business in mainland China compensated for some of the declines in other Asian markets.
In light of widespread temporary store closures as a result of global lockdowns, both, the Group’s own retail business and its wholesale business recorded double-digit sales declines in fiscal year 2020. On average, around 20% of the Company’s more than 1,000 own points of sale globally were closed in 2020. From a brand perspective, the decline in sales was slightly lower for HUGO than for BOSS, with both brands’ casualwear offerings performing significantly better than formalwear. This mainly reflects the global casualization trend, which has experienced a further strong push in the wake of the pandemic.
HUGO BOSS continued to make significant progress along its strategic growth drivers also in 2020. In particular, the Company’s own online business performed very strongly, with a currency-adjusted sales increase of 49%, thus posting significant double-digit growth for the third consecutive year. Consequently, HUGO BOSS has managed to break the US$239.6 million mark with its annual online sales for the first time in its history.
This was also supported by the successful expansion of the Company’s online flagship store hugoboss.com to 32 additional markets. Following the lockdown at the beginning of the year, business in the strategically important market of mainland China gained strong momentum. Already during the second quarter, HUGO BOSS was able to return to its double-digit growth trajectory over there, and managed to keep this momentum throughout the remainder of the year. Overall, currency-adjusted sales in mainland China grew by 5% in 2020.
The significant decline in sales inevitably also weighed on the earnings development of HUGO BOSS. Moreover, a lower gross profit margin weighed on EBIT, mainly reflecting increased markdown activity in the wake of the pandemic, in particular in Europe and the Americas. However, the Company’s strict cost management as well as its successful implementation of comprehensive expense-reduction measures partly compensated for the decline. In particular, HUGO BOSS was able to significantly reduce costs in its own retail business and eliminate non-business-critical expenses as far as possible. Excluding non-cash impairment charges, EBIT therefore amounted to minus US$151 million (2019 excluding impairment charges: US$425.3 million).
Thanks to its healthy balance sheet structure, HUGO BOSS was well prepared for the financial challenges associated with the pandemic throughout 2020. At an early stage, the Company also implemented comprehensive measures with a total volume of more than US$719 million to further protect its cash flow and successfully executed them throughout the remainder of the year. These measures included a significant reduction in operating expenses, the postponement of non-business-critical investments, a considerable reduction of merchandise inflow and the suspension of the dividend payment for fiscal year 2019, with the exception of the legal minimum dividend of EUR 0.04 per share. All of this ensured that HUGO BOSS had sufficient liquidity at all times and ended 2020 with a positive free cash flow of US$196.5 million. Consequently, the Group has not yet utilized the additional credit lines that it had secured over the course of 2020.
The global business of HUGO BOSS continues to be significantly impacted by the implications of the COVID-19 pandemic. Since the beginning of the year, an average of around 30% of the Company’s own points of sale were temporarily closed as a result of persisting lockdowns. This is particularly true for key European markets such as the UK and Germany. Moreover, significant restrictions on public life as well as international travel restrictions continue to weigh on the recovery of the overall industry as well as on the business of HUGO BOSS. The Company expects that particularly the first quarter of 2021 will still be significantly impacted by the negative implications of the pandemic.
At the same time, HUGO BOSS is confident that the global retail environment will gradually improve over the course of 2021, starting with the second quarter. In this context, the Company expects its global business to recover noticeably in the further course of the year. In particular, the vaccination campaigns – which are continuing to make progress globally – and the pursued gradual lifting of lockdowns and restrictions on public life, should have a positive impact on business performance. As a result, the Company currently expects Group sales and EBIT in fiscal year 2021 to be well above the prior-year level.
Pushing ahead with the Group’s strategic initiatives will also be crucial to further driving the recovery of its business. Besides putting a strong emphasis on its strategic growth drivers online and China, HUGO BOSS will continue to push the casualization of its business model – across all brands, genders, and occasions.
Further elevating the desirability of its brands remains another clear focus for HUGO BOSS in 2021. Various brand and product initiatives will continue to drive brand heat for BOSS and HUGO, especially among younger customers. With Hollywood actor Chris Hemsworth, the Company recently signed the first global brand ambassador for BOSS Menswear. In this role, the 37-year-old Australian will be the face of international campaigns and give a strong boost to the important casualwear business.
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The recently announced partnerships with the American sportswear brand Russell Athletic and the professional basketball league NBA will provide further tailwind in this context. Thanks to their clear focus on street style, both collections will further strengthen the desirability of BOSS casualwear. While the first collection co-created by BOSS and Russell Athletic is about to launch shortly, the “BOSS x NBA” capsule got off to a highly successful start already in February, as reflected in strong sales figures, both online on hugoboss.com as well as in brick-and-mortar retail.