Trend-Setting Cut

The luxury bubble has popped for German fashion brand Hugo Boss. Second-quarter sales fell 4 percent year-on-year, still managing to beat analyst expectations. But quarterly net profit was down 84 percent. The label’s new chief executive, Mark Langer, will shutter 20 stores and cut 50 million euros of costs to get the business back on track. Luxury investors should appreciate action in a sector that has been slow to grasp how times have changed. Hugo Boss’s outlook has deteriorated since former chief Claus-Dietrich Lahrs stepped down in February following a profit warning. Its Asia expansion is not going to plan, with revenue down 10 percent year-on-year in the second quarter. The group said back in March it would close 20 of its 145 stores in China. Sales in the United States were even worse, falling by a fifth year-on-year. Hugo Boss deserves credit for rolling up its sleeves and cutting back. The same cannot be said for Italy’s Prada, whose net income fell 28 percent last year and still hasn’t articulated a credible plan to boost top-line growth. Swiss watchmaker Swatch sounded behind the times when it said it wouldn’t cut costs even after net profit more than halved in its most recent results.

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