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Aug 2, 2010
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Hugo Boss sees 2010 challenging, Europe stays tough

By
Reuters
Published
Aug 2, 2010

Hugo Boss (BOSG_p.DE) sees 2010 as a challenging year in spite of the global luxury goods recovery as demand in Europe, where it makes the bulk of sales, remains subdued, the German fashion house said on Thursday.

Hugo Boss
Hugo Boss S/S 2010


The Metzingen-based company expects revenue growth of 3-5 percent for the full year excluding currency effects, mainly driven by Asia, after a 4 percent drop to 769 million euros ($1 billion) in the six months to June 30.

In Europe, the Middle East and Africa, where it relies much on wholesale channels, sales fell 9 percent to 490 million euros.

"With regard to the European markets, the overall picture is mixed," Hugo Boss said, with sales declines of 21 percent in France, 10 percent in the Benelux and 2 percent in Germany, its biggest market.

However, sales rose 3 percent in the United Kingdom.

"2010 will therefore remain a challenging year on account of the macro economic situation."

The company added that it did not expected a return to the 2008 sales level before 2011 or 2012.

Shares in Hugo Boss on Thursday were down 0.8 percent at 35.54 euros by 0842 GMT.

Hugo Boss trades on about 16 times projected 2010 earnings, which puts it roughly in line with the European luxury goods sector excluding Hermes (HRMS.PA).

Hugo Boss's tepid outlook contrasted with a bullish update from luxury market leader LVMH (LVMH.PA) whose chief executive Bernard Arnault on Tuesday said he was "very confident" about the second half after forecast-beating first-half results.

LVMH's fashion and leather goods sales jumped 18 percent in the first half while luxury peer Hermes (LVMH.PA) saw a 23 percent rise in first-half sales, or 20 percent at constant currencies.

LVMH trades on 19 times, Hermes 33 times and Burberry (BRBY.L) is on 22 times this year's projected earnings.

The Hugo Boss brand is not regarded as strong and high end as many of LVMH's fashion goods such as Louis Vuitton and is more reliant on wholesale retail -- which the company does not fully control -- than LVMH's brands or Hermes.

EXPECTED OUTLOOK

Hugo Boss had said in April it expected a positive development in sales and earnings in the second half of the year and aimed to grow full-year revenue by a single-digit percentage rate with core earnings growth at a faster pace. [ID:nLDE63P1Z2]

On Thursday, it forecast a rise in earnings before interest, tax, depreciation and amortisation (EBITDA) before special items of 10-12 percent for the current year to Dec. 31.

"The outlook is not very enthusiastic but it is in line with my expectations," said Tim Burkhardt, analyst at Landesbank Baden-Wurttemberg.

The luxury goods industry suffered its worst slump in decades last year with sales down 8 percent but the industry has slowly been crawling out of the downturn, helped by Chinese buyers and recovery in Europe and the United States.

Hugo Boss said it expected its joint-venture in China to boost to sales going forward after revenue from the country jumped 52 percent in the first half, excluding currency effects, to 40 million euros, helped by new shops.

Meanwhile, sales in the American continent rose 14 percent to 169 million euros in the first half.

Overall, Hugo Boss first-half earnings before interest, tax, depreciation and amortisation before special items reached 123 million euro, up 7 percent against last year.

(Reporting by Astrid Wendlandt; Editing by Mike Nesbit) ($1=.7684 euros)

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