Hugo Boss shares jump on China upturn and wider cost cutting

Shares in Hugo Boss rose nearly 7 per cent on Wednesday after it announced a recovery in sales in China and higher cost savings as new boss Mark Langer sets out to revive the struggling German fashion house.

Langer is returning Hugo Boss to its roots selling smart men’s suits, reversing the course of his predecessor Claus-Dietrich Lahrs, who sought to make the premium label more of a luxury brand and invested heavily in promoting its womenswear.

Hugo Boss optimistic on China upswing

Lahrs quit in February as Hugo Boss sales slumped in the United States and China, prompting new CEO Langer, the former finance chief, to announce plans to cut costs by renegotiating rents, shutting stores and shifting marketing spending back to the menswear business.

Hugo Boss said third quarter sales in China rose on a like-for-like basis. That broke the negative trend of previous quarters as volumes rose at a double-digit rate after the company slashed prices to bring them closer to European and U.S. levels.

“We are on an upward trend in China now. I’m satisfied at how quickly and comprehensively we adjusted our cost structures to the changing business conditions,” said Langer, who was appointed CEO in May. He will give details on his longer-term plans at an investor day on Nov. 16.

Hugo Boss shares, which have gained 13 percent in the last month but still trade at a discount to luxury peers, jumped another 6.7 percent by 0832 GMT.

“We believe that Hugo Boss, under the new leadership of CEO Mark Langer and with a sensible strategic turnaround plan, can return to a solid revenue/earnings dynamics,” said Citi analyst Thomas Chauvet, who rates the stock a “buy”.

Net profit fell 9 percent to 81 million euros (73 million pounds) on sales down 6 percent to 703 million, compared to analysts’ average forecasts for 76 million and 706 million respectively.

Luxury goods giant LVMH reported a forecast-beating acceleration in third-quarter sales last month, helped by improved trading in major markets such as China and resilient demand in the United States.

Hugo Boss said extensive cost savings had helped limit the impact of falling sales on earnings, adding it now planned savings of 65 million euros for 2016 compared with a previous target of 50 million.

Those savings would come mostly from renegotiating store leases and cutting administrative costs and marketing, it said.

That helped it reiterate a forecast for full-year currency adjusted sales to fall by up to 3 percent and for operating earnings before special items to fall by 17 to 23 percent.

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