Hugo Boss to focus on cost control after Q2 earnings slump

By Ozan Ergenay and Tristan Veyet

(Reuters) -Hugo Boss confirmed the expected 42% drop in its second-quarter operating profit on Thursday, and said it was focusing on cost savings to boost profitability in the coming quarters.

The German fashion house, known for its mix of formal wear and casual styles, last month slashed its annual forecasts and reported preliminary numbers below expectations, as economic and geopolitical challenges dampen global consumer demand.

The luxury sector is grappling with weaker sales and margin pressures as inflation-hit shoppers cut back spending on designer fashion. A property slump and job insecurity in China has exacerbated the problem.

Second-quarter earnings from luxury companies have demonstrated the strain that the sector is under, with the likes of LVMH and Kering also falling short of forecasts.

Hugo Boss said it had taken additional measures to enhance efficiency and effectiveness across its business, capitalizing on the organizational platform it has built in recent years.

The company has identified a lot of potential for savings in the area of sourcing, and has already started implementing quite a few measures, CEO Daniel Grieder told reporters in a call.

Grieder added Hugo Boss was not expecting significant improvements in the consumer sentiment in the second half of the year, and reiterated it might reach the 2025 sales target of 5 billion euros ($5.4 billion) with a slight delay, as was flagged in March.

The company's shares were 3.7% higher by 0915 GMT, among the top performers on Germany's mid-cap index.

"The market likes group's message to concentrate on cost efficiency. That increases the likeliness that Hugo Boss will reach its lowered full-year targets," Volker Bosse, analyst at Baader Helvea said.

Morningstar analyst Jelena Sokolova also said the focus on cost control was likely taken positively by the investors, amid concerns over growing costs needed to support revenue.

($1 = 0.9280 euros)

(Reporting by Ozan Ergenay, Tristan Veyet in Gdansk, additional reporting by Linda Pasquini; editing by Milla Nissi)