Hugo Boss issues profits warning on US woes

German fashion group Hugo Boss warned accounting discrepancies and problems with its clothing range for women will force it to miss its profit forecast this year, sending its shares tumbling.

Boss, which cut its profit forecast by about 11 per cent, has put some of its top managers in the United States on paid leave.

The company declined to give details on the temporary departure of its US chief executive, Marty Staff, and finance chief, Vincent Ottomanelli, but investment bank HSBC cited possible accounting irregularities and massive US structural problems as reasons for cutting its rating on Boss to "reduce" from "add".

Boss admitted there were problems with its books.

"Inventory discrepancies during stocktaking in the United States along with a continuing weak US economy are the main reasons (for lowering the forecast)," Boss said in a statement, adding that it expected a slight rise in full-year sales.

Hugo Boss said it now expected net income of €95m (£60m) for 2002 compared with its earlier target of maintaining the level of last year's €107m.

Of the €12m shortfall, €6m was due to inventory differences, €4m to lower deliveries of the women's range, and €2m to weak US sales, Boss spokesman Philipp Wolff said.

The company no longer expected to achieve its 2002 sales growth target of 5 per cent, he added.

Hugo Boss shares lost more than nine per cent in early trading but recovered to be down 13 cents to €18.47 in late trading.

"We got the confirmation that management of the US business – Mr Staff and Mr Ottomanelli – have been forced to leave the company," HSBC said in a research note.

"Hugo Boss does not comment on the speculation of accounting falsification, but we clearly got the impression that there are massive structural problems in the United States, which had led to the dismissal of the management in the US."

HSBC said it could not rule out that there would be extraordinary expenses resulting from the US situation.

Boss also said its core business outside the United States would continue to increase sales and net profit this year.

The company said that 2002 was a transitional year for its Boss Woman clothing range, which would see no sales growth and post results below expectations.