Hugo Boss sales rebound in China and U.S., but Germany sags

German fashion house Hugo Boss reported strong quarterly sales growth in China and the United States on Wednesday but saw a decline in its home market and for its Hugo brand that it is updating for younger consumers.

After a string of profit warnings as sales fell in China and the United States in 2015 and 2016, Boss has reversed efforts to take the brand more upmarket and expand in womenswear, returning to its roots selling men’s suits.

It said heavy investment in integrating its websites and stores, which is denting profitability, was bearing fruit, with online sales up 43 percent in the quarter and same-store sales up 7 percent, accelerating from 3 percent in 2017.

Boss shares, which are up 12 percent in the last year but still trade at a discount to luxury leaders Kering and LVMH, were flat at 0910 GMT.

First-quarter sales were flat at 650 million euros ($780 million), rising 11 percent in China and 6 percent in the Americas, but falling 5 percent in Germany.

A recovery in spending by Chinese shoppers over the past 18 months has fueled revenue rises for many top luxury brands, although the sector still faces pressure, such as a strong euro and simmering U.S.-China trade tensions.

Chief Executive Mark Langer told a conference call for journalists he does not expect any short-term impact from the escalating trade war, but said any trade restrictions would ultimately hurt customers by pushing up prices.

He said Boss had been unable to decouple its performance from a sluggish German fashion market and expects it will take one or two quarters to stabilize and start growing there again.

Earnings before interest, taxation, depreciation and amortization (EBITDA) before special items rose 1 percent to 99 million, ahead of average analyst forecasts for 97 million, helped by lower selling and distribution costs.

Analysts said the rise in same-store sales was encouraging, but the fall in operating expenses that helped support profitability was due to costs being pushed back in the year and would not necessarily continue throughout the rest of 2018.

“The stock ran strongly into the print and the 7 percent like-for-like is good enough on the top line, but the cost phasing makes full-year upgrades unlikely,” said UBS analyst Fred Speirs.

The core Boss brand saw sales up a currency-adjusted 7 percent, while Hugo, aimed at a younger audience, slipped 6 percent, which Langer said was due to Boss taking over selling space from Hugo, which is also cutting sales in outlet stores.