Hugo Boss gets boost from sales rise in China, UK

Shares in German fashion house Hugo Boss rose 7 percent on Monday after it said it expected operating 2016 profit to fall by less than it feared due to fourth-quarter sales recovering in China and in Britain.

The firm said like-for-like sales had risen almost 20 percent in mainland China, adjusted for currency effects. It forecast operating profit for 2016 would reach the better end of its forecast for a decline of between 17 and 23 percent. It publishes final 2016 results on March 9.

Shares in the company, down 12 percent in the last year after sliding profits and analyst downgrades, were up 8.6 percent at 1050 GMT, the biggest rise on the German mid-cap index .MDAX.

"The positive earnings surprise indicates that Hugo Boss’ business is improving and that market expectations are still low," said Commerzbank analyst Andreas Riemann, who rates the stock "buy".

Shares in rivals such as LVMH and Gucci owner Kering have rallied in recent months as Chinese customers, the biggest buyers of luxury goods making up more than a third of global demand, have been re-opening their wallets, spurred in part by government policies encouraging local consumption.

However, Hugo Boss continues to trade at a discount to the sector due to concerns over upheaval as new Chief Executive Mark Langer seeks to revive the business.

Langer, the former finance chief who took over in May, is returning Hugo Boss to its roots selling men's suits after his predecessor sought to make the label more of a luxury brand and invested heavily in promoting womenswear.

Langer has also announced plans to close some stores and slow the pace of openings as well as cutting brands to focus on one higher-priced premium line and another at lower prices for younger consumers.

"Fourth quarter results underline that we are on the right track," Langer said in a statement.

Fourth-quarter sales fell 3 percent to 725 million euros (£636.5 million), down 1 percent on a currency adjusted basis, but an improvement on a third-quarter adjusted fall of 6 percent.

Sales fell a currency-adjusted 14 percent in the Americas, where Hugo Boss is stopping selling the brand at discount-only outlets. But it saw "robust" sales growth in Britain, which helped sales in Europe rise 2 percent.

Other premium brands such as Burberry have reported a boost to sales from tourists coming to Britain to take advantage of a fall in the pound since the country's June vote to leave the European Union.