German fashion house Hugo Boss is bringing prices in Asia down closer to levels in Europe and the Americas after saying its sales in China and the United States so far this year have been weaker than it expected. Hugo Boss shares plunged 19.8 percent on Tuesday after the German brand, which is headed up by creative director Jason Wu, said its profit will decline by at least 10 percent this year due to weaker-than-expected sales in the U.S. and China. This marks the biggest fall on the Stoxx 600 index since October 2008.
Beijing's ongoing clamp-down on corruption and conspicuous spending, which went into effect in 2012, taken together with a faltering economy have hurt the Chinese market for luxury goods. Analysts estimate more than two thirds of luxury purchases by Chinese buyers are done overseas, offering savings of more than 50 percent compared with China prices thanks to foreign exchange rates, tax refunds and other discounts.
Hugo Boss, which had already warned last month that it was suffering from weak markets in China and the United States, said it now expects 2016 sales to rise at a low single-digit percentage rate on a currency adjusted basis. The group said in November it expected sales in 2016 to stay below its long-term target for high single-digit growth because of the challenges in China and the United States, which together account for more than a third of its sales. It added it will limit the distribution of its core Boss brand in the U.S. wholesale business to try to avoid the impact of a market dominated by big discounts.
It said cost cuts would only partially be able to compensate for the price cuts in Asia and the limiting of distribution to U.S wholesale. That means it now expects adjusted operating profit to fall at a low double-digit percentage rate, while it is also abandoning a target to improve its adjusted operating margin to 25 percent this year.
Hugo Boss said it would discuss its financial outlook in more detail when it presents annual results on March 10, adding it is confident it can keep increasing sales in the medium term and also improve its margins again in future.
(Reporting by Emma Thomasson; Editing by Maria Sheahan and Susan Thomas)