Dear ladies and gentlemen, welcome to the HUGO BOSS Second Quarter 2022 Results Conference Call. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone lines. If any participants have difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand over to Christian Stöhr, Vice President of Investor Relations, who will lead you through this conference. Please go ahead.
Yes. Thanks very much, and good morning, everyone. Welcome to our second quarter 2022 financial results presentation. Today's conference call will be hosted by Yves Müller, CFO and COO of HUGO BOSS. Before I hand over to Yves, allow me to remind you that all revenue related growth rates will again be discussed on a currency adjusted basis, unless otherwise specified. I would also like to remind you that during the Q&A session, we kindly ask you to limit your questions to a maximum of two. Without any further ado, let's get started, and over to you, Yves.
Thank you, Christian. Also from my side, a warm welcome from sunny Metzingen to all of you. As you have taken notice from our pre-release from mid-July, at HUGO BOSS, we look back on a highly successful second quarter with top and bottom-line growth further accelerating. Sales increased a strong 34% year-on-year to EUR 878 million. This means record second quarter sales for our company. Importantly, momentum was once again broad-based in nature, with strong top line growth across all brands, all channels, and key regions. Also from a bottom-line perspective, Q2 saw significant improvements. At EUR 100 million, EBIT more than doubled year-over-year, thereby reaching new second quarter heights for HUGO BOSS. Compared to 2019 levels, EBIT was up a strong 25%.
This underlines the high quality of our top line growth and is even more remarkable given long-lasting store closures in mainland China throughout much of the second quarter, as well as the ongoing conflict in Ukraine. Equally, if not more importantly, compared to pre-pandemic levels, sales were up 29%, representing yet another strong acceleration of 12 percentage points as compared to Q1. This is all the more encouraging as we now look back on our four consecutive quarters of sequential revenue improvements versus 2019 following the announcement CLAIM 5 growth strategy in August last year. It impressively demonstrates the strength of our company, the desirability of our brand, and the power CLAIM 5. Thanks to the rigorous and relentless execution of our five strategic priorities, only one year after the introduction CLAIM 5, we can clearly see that our strategy is bearing fruit.
HUGO BOSS, with its two iconic brands, BOSS and HUGO, is stronger than ever before. Above all, the bold branding refresh that we successfully implemented in early 2022 has provided an incredible boost to brand perception and relevance. With our new modern brand identity, we are winning over consumers all over the globe, turning them into true friends for our brands. This was particularly noticeable on social media, where many engaging marketing initiatives created tremendous buzz, thereby boosting our brands, especially among younger generations such as Gen Z and the Millennials. The anchors were clearly our two star-studded global campaigns, #Be Your Own BOSS and #How Do You HUGO, which have driven strong brand heat since their launch at the end of January this year.
Supported by dedicated brand events such as the 2022 Open Championship in St. Andrews, as well as the iconic Coachella festival in Palm Springs, both BOSS and HUGO were able to maintain their strong momentum on social media. Throughout the first half of the year, BOSS has been the fastest growing brand on Instagram among key premium apparel peers, while HUGO managed to outperform core competitors on TikTok accordingly. Equally important, both brands recorded a sustainable uptick in organic engagement rates. Since the launch of our star-studded campaigns and the implementation of our branding refresh, BOSS and HUGO have generated nearly 30 billion impressions and more than 1 billion interactions on social media. All this is proof positive that we have successfully boosted our brands within a short period of time. The next big activation is just around the corner.
Building on the incredible success of our brand refresh, this morning has seen the go live of our Fall/Winter 2022 campaigns. Both BOSS and HUGO have once again gathered a high-profile all-star cast to tell the next chapter with some familiar faces, including Kendall Jenner, Alica Schmidt, Khaby Lame, and Big Matthew, as well as some new celebrities, including supermodel Naomi Campbell for BOSS Women's Wear or American model and singer, Selah Marley for HUGO. We have no doubt that the new campaigns will keep up the momentum of the brand refresh also over the next weeks and months, and further boost brand relevance for BOSS and HUGO around the globe.
Besides marketing, it is of course also our new product offering that keeps resonating extremely well with both our wholesale partners and the global consumer. Our brands Spring, Summer and Pre-Fall collections with a unique look and feel and their strong focus on creating a 24/7 image attracted new and younger customers, thereby resulting in ongoing strong sell-throughs across all wearing occasions. Speaking about sell-through rates, I'm particularly encouraged by the surge in our full-price business, reflecting our brand's powerful momentum, something that also provided strong tailwind to our gross margin development in the second quarter, on which I will elaborate in more detail in just a few minutes. Now, with our Fall/Winter collection hitting the shelves as we speak, both BOSS and HUGO will ensure that product is and will remain king.
We continue to delight our customers with our brands and product lines and a superior price value proposition also in the second half of the year. The launch of various unique capsule collections has enabled us to create further excitement. Among others, BOSS Menswear has launched a dedicated capsule co-created by TikTok superstar and global BOSS brand ambassador Khaby Lame, while BOSS Womenswear is collaborating with German athlete and campaign face Alica Schmidt. HUGO, on the other hand, has teamed up with Mr. Bathing Ape during the second quarter to further drive credibility in the important streetwear market, while joining forces later this year with Replay for a truly unique denim collection. In the wake of these successes, momentum for BOSS and HUGO has further accelerated, with revenues up 29% for BOSS Menswear and up 6% for BOSS Womenswear, both compared to pre-pandemic levels.
Our BOSS brand recorded strong sales improvements in the second quarter, as well as significant acceleration compared to Q1. Importantly, growth was driven across all wearing occasions as not only casual wear continued to record strong double-digit growth, but also formal wear, offering exceeded 2019 levels for the first time. This is proof positive that we are making great progress in transforming BOSS into a true 24/7 lifestyle brand. Also at HUGO, the robust performance during the second quarter is providing strong evidence that the brand's strategic focus on contemporary and commercial styles propels the overall momentum, thereby leveraging HUGO's tremendous potential. Overall, sales were up 39% on three-year stack with casual wear sales once again more than doubling. From a regional perspective, growth in the second quarter was particularly strong in Europe and the Americas, with both regions recording a further acceleration.
On a three-year stack basis, sales in Europe increased 36%, representing a sequential improvement of 15 percentage points as compared to Q1. This development was driven by double-digit growth across key markets, including Great Britain, France, and Germany, supported by robust local demand as well as the return of tourism. In addition, we continue to enjoy strong momentum in both Eastern Europe as well as the Middle East, as reflected by double-digit and triple-digit growth respectively. Also in the Americas, momentum remained robust in the second quarter with three-year stack growth accelerating by 21 percentage points to 38%. While all markets contributed to this success, I'm particularly pleased that our important U.S. business, where we continue to successfully foster our 24/7 brand image, saw a further acceleration compared to Q1, posting three-year stack growth of 23%.
In this context, let me also emphasize that as we speak, our underlying momentum in the Americas remains intact with no tangible signs of a potential slowdown so far. This also holds true for our business in Europe. Finally, in Asia Pacific, revenues were down 4% versus pre-pandemic levels also as double-digit growth in Southeast Asia Pacific was more than offset by a 13% decline in mainland China versus 2019. As you would expect, the latter was impacted by COVID-19 related lockdowns, with one-third of the market store network being temporarily closed in the months of April and May. This resulted in a 20% store closure rate in mainland China for Q2 as a whole.
Importantly, we have seen the first sign of a decent, steady recovery in mainland China since reopening, with our business having reported double-digit revenue improvements versus 2019 in both June and July. Let's conclude on the top line with a brief review of the performance by channel, where our brick-and-mortar business recorded particularly strong growth in the second quarter. In brick-and-mortar retail, revenues exceeded 2019 levels by 19%. This development represents a strong quarter-on-quarter acceleration of 18 percentage points, driven by robust store productivity improvements to levels above those seen pre-pandemic. It reflects the successful execution of strategic initiatives to further optimize our global store network, as well as overall higher stores traffic in the second quarter. Speaking of physical retail, in mid-June, we took the brand experience to the next level as the doors of our new BOSS flagship store opened on London's iconic Oxford Street.
Our new retail approach provides a seamless blend of digital and in-store shopping experience, thereby setting the stage for a best-in-class omnichannel journey. The rollout of our new store concept will continue to play an important role also in the future. Besides new store opening, this also includes the refurbishment and upgrade of up to 100 existing points of sale in 2022, with London Regent Street and Vienna coming up in the second half of the year, just to name a few. Moving over to physical wholesale, where revenue growth also saw a further acceleration in the second quarter. Fueled by our successful brand refresh, we have been enjoying strong demand from wholesale partners around the globe, resulting in strong three-year stacked growth of 18%.
Finally, on our digital business, which continued its double-digit growth trajectory year-on-year, despite being up against a challenging comparison base and despite the strong acceleration seen in brick-and-mortar during the second quarter. Compared to pre-pandemic levels, digital revenues even more than doubled, up 128%, leading to a digital sales share of 18% in the second quarter. With this, let's now move on to the main P&L items where the strong top-line performance in Q2 has clearly also left its positive mark. Starting with our gross margin, which totals 63.5% in the second quarter, representing a strong increase of 230 basis points year-on-year. This development is a direct consequence of a noticeably higher share of full price sales following the uptick in brand momentum in the wake of the brand refresh.
In doing so, we were able to more than compensate for the persistently high level of global freight costs, as well as some negative currency and regional mix effects. Now, it's important to stress that the negative implications resulting from higher transportation energy costs will most likely continue to weigh on input costs in the foreseeable future. In addition, we also anticipate that unfavorable currency effects will remain a headwind for our gross margin development in the short term. Moving over to operating expenses, which increased 34% in absolute terms, mainly reflecting higher rental and payroll costs as well as a step-up in marketing investments. As a percentage of sales, however, and driven by the strong top-line development, total operating expenses improved by 240 basis points to a level of 52.2%, well below pre-pandemic levels.
In particular, selling and distribution expenses were up 35% year-over-year, driven by an increase in variable rent in the light of a strong revenue growth. In addition, higher marketing investments up 29% in Q2 contributed to this development. At 6.6% of group sales, however, marketing investments have normalized somewhat following the peak in Q1 and are now closer to our target range of 7%-8% as set out in CLAIM 5. Last but not least, we also recorded non-cash impairment charges of EUR 50 million related to our store network in Russia as we impaired around half of our asset base over there in the second quarter.
Now, in the light of the strong top-line performance, the robust improvement in gross margin, as well as the operating expense leverage generated in the second quarter, we were able to realize significant bottom-line improvements in Q2, as reflected by a record second quarter EBIT of EUR 100 million, as well as a robust improvement in the EBIT margin up 460 basis points to 11.4%. In this context, however, allow me to remind you that we will continue to invest in our business also going forward, as we remain fully committed to further fueling brand momentum for BOSS and HUGO. We will not compromise on that, as we are convinced that this will ensure we successfully deliver on our CLAIM 5 targets.
Let's now turn quickly to the balance sheet, starting with trade net working capital, which as a percentage of sales, continued to decline to a level of 13.8% only. A strong increase in trade payables year-over-year, reflecting a higher utilization of our supplier financing program, more than compensated for our for higher trade receivables, as well as a currency-adjusted 17% increase in inventories. The inventory buildup is above all aimed at ensuring product availability for the upcoming season in the wake of persisting global supply chain bottlenecks. Let me also be very clear that we continue to feel very comfortable with our current inventory situation as we continue to operate with a healthy and high-quality inventory mix.
This brings me to free cash flow, which amounted to EUR 98 million in the second quarter, slightly below the prior year levels, as improvements in EBIT were more than offset by the increase in inventories as well as our well-selected step-up in capital expenditure. This concludes my remarks on our second quarter operational financial performance. Let's now move over to our expectations for the remainder of the year. As you will have noticed from our pre-announcement, we increased our outlook for the current fiscal year. In doing so, we take account of the stellar top and bottom-line performance in the second quarter and the first half year respectively, the uptick in brand momentum, as well as our confidence when it comes to the second half of the year.
At the same time, our updated outlook reflects the persistently high levels of macroeconomic uncertainty, as well as the comparison base that is becoming increasingly more difficult from here on as we returned to pre-pandemic levels back in Q3 last year. Consequently, regarding our top line, we now forecast group revenues in fiscal year 2022 to increase by between 20% and 25% to a new year record level of between EUR 3.3 billion and EUR 3.5 billion. Importantly, growth will be broad-based in nature with all brands, all channels in all regions set to contribute to our growth targets. Our confidence is underpinned by the persisting strong brand momentum of BOSS and HUGO across key geographies and the fact that we have not witnessed any material change in consumer shopping behavior at this point of time.
Based on the anticipated strong top-line growth and at least stable gross margin development year on year, we are now forecasting EBIT to increase by between 25% and 35% to a level of between EUR 285 million and EUR 310 million in fiscal year 2022. This holds true despite the significant step up in product, brand, and digital investments, which are a firm element of our CLAIM 5 strategy and will continue to lead the way throughout the second half of 2022. At the same time, we've also factored in some of the ongoing macroeconomic uncertainties and particularly when it comes to elevated freight and energy cost levels as in general cost inflation. As is the nature of things, it is rather difficult to precisely predict how these uncertainties will evolve.
While we have already implemented measures to protect our bottom line in the short term, including the already announced mid- to high-single-digit price increase starting with the upcoming Fall/Winter 2022 season. At HUGO BOSS, we will continue to monitor the macroeconomic environment very closely and react quickly and effectively to any changes in market conditions also in the future. Now this brings me to the end of my presentation. Before we kick off with the Q&A session, let me briefly recap on our performance during the second quarter and the first half year respectively. Above all, the strong performance in Q2 is nothing but a direct consequence of our CLAIM 5 strategy, which has quickly proven to be a winning formula for our company. Thanks to the steady and focused execution of our strategic initiatives, we have made a kick start to CLAIM 5.
Our true brands, BOSS and HUGO, have gained meaningful traction leading to broad-based momentum as well as significant top and bottom-line improvements in the first half of the year. However, we will by no means rest but instead continue to push the pedal to the metal. Thanks to an exciting brand and product pipeline being filled for the remainder of the year, I'm very confident that both BOSS and HUGO will continue their successful journey. With our increased top and bottom-line outlook for the current year, fiscal year, in 2022 we will reach another important milestone on the way to our 2025 targets enabling us to ultimately achieve our medium-term ambition of becoming one of the top 100 global brands. With this, I'm now very happy to take your questions.
Thank you. Now we will begin our question-and-answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. Our first question is coming from Grace Smalley at Morgan Stanley . The line is now open.
Hi. Good morning. Thank you very much. I guess if I could first ask, you mentioned that you have not yet seen any changes in consumer behavior, yet your guidance does embed a slowdown in revenue growth in the second half. Perhaps could you just give some more details in terms of what you're seeing on current trading, and order books as well? That would be very helpful. Then, secondly, on inventory, you mentioned there that the inventory growth has been driven by your decision to make sure that you do have product availability. Perhaps you could just elaborate on the actions you have taken there and then also your comfort on inventory levels at your wholesale partners as well and whether you're seeing any changes in broader inventories across the market and promotional activity. Thank you very much.
Yes. Good morning, Grace. Thank you very much for your questions and your interest. Regarding current trading, as I mentioned already during my presentation, first of all, I have to say we are very happy with the current development and how we started into the third quarter. We have seen so far, no change in consumer behavior, and we have seen so far that no slowdown in overall consumer demand. I can actually confirm what I said during my presentation and finally confirm that we are happy with the current developments. Regarding product availability and this 17% Forex adjusted increase, it's clearly driven by ensuring the product availability. You can see that how fast we are growing, and this is really to ensure that we have the product availability in place.
I'm not concerned at all if I look at the quality of the inventories. We even decreased, you know, the aging structure of our inventory. I'm very happy with the inventory level and actually we have to ensure a very strong demand that we see all over the different geographies and so that from a supply perspective we are capable to deliver this kind of demand. Actually, you know, regarding wholesale, you know that the wholesale, especially the fall winter collection, has seen a 40% increase in sell-ins versus the pre-pandemic levels. This has to also be reflected in our inventory levels. So far, the sellouts are very good in our wholesale sales channels. We see this.
We have seen that the pre-spring order has been up double-digit as well. This is a clear positive sign from our perspective that sellout rates are good and that, you know, the wholesale partners are even ordering more for the new collection.
Thank you very much.
The next question is coming from Thomas Chauvet at Citi. Your line is now open.
Good morning, everyone, and Christian. My first question on China and your guidance for the full year. In light of what you're seeing in July in China, what is your kind of reasonable growth assumption for the second half in this market? Whether for HUGO BOSS, what do you think the, you know, premium ready-to-wear category will do in China in the second half? Secondly, you've provided some color on the growth in casual wear. Could you give us the split in the first half between casual wear, formal wear, and shoes and accessories with the breakdown?
Within formal wear, what is now the share of traditional business attire versus the formal wear related more to events that you've been pushing? Just finally on women's wear, its underperformed men's wear in the first half. Obviously, it's a much smaller base. Is that in line with your expectations? Can you remind us what you're doing differently on women's wear versus the past to make it work? That'd be useful. Thank you.
Yes. Thank you very much. Good morning, Thomas. Thank you very much for the questions. Regarding China, first of all, we are very happy since the release of the lockdowns that the business has come back. Like we pointed out, we have seen double-digit growth in June and July versus 2019. I think we are very happy with the fast recovery. On the other side, we remain somehow cautious with the development in China because we don't know what will really happen, what will be happening. You know, it can be very fast that there might be some further lockdowns because China has not yet changed their zero COVID policy overall.
Regarding formal wear and casual wear, as you know, I mean, the overall, if you really divide it, I mean, I have to point out, Thomas, that we are clearly saying for BOSS, we wanna be 24/7 lifestyle brand. We don't on our own side, we don't differentiate any longer between formal and casual wear. On the other side, if you would do this, you clearly see we have around 25% which is formal wear, 50% which is rather casual wear. The other 25% is shoes, accessories and body wear and hosiery. You could really see that casual wear and shoes and accessories, especially in the sneaker business, is growing at a very decent and higher base.
We just closed now that with the BOSS brand, we are now for the first time above the 2019 levels because we see that, you know, occasions are coming back. We see actually in our wholesale orders as well for the future very good orders for smart casual and BOSS Black. Actually, we are very happy with the current development of formal wear, and it seems like this trend will be persisting over the next quarters. Regarding women's wear, we are completely in line with our own expectations. You know that we have a new management. You know that, you know, regarding our own ambition regarding CLAIM 5, we want to double the business.
I think we are on a good path to execute this. We have seen actually, you know, the new management has worked on the new collections and the pre-order status in women's wear are clearly on green light. We are happy with the current development on women's wear as well.
Thank you.
The next question is coming from Antoine Belge at BNP Paribas Exane. Your line is now open.
Yes. Hi, it's Antoine Belge at BNP Paribas Exane. Three questions. First of all, regarding sales. I mean, this year is a bit special maybe because you know, thanks to the fact that you know, relaunch BOSS Orange, et cetera, you were able to gain, I would say, more selling space. I know it's difficult, but you know, for instance, that in that order book up 40%, you know, could you maybe isolate more what is sort of space impact and a bit more of a like for like?
I know it's hard to make, but because I think there are question marks about next year when that sort of base effect is behind us. The second question is about, you know, the CC fee on the U.S. market. So, no slowdown and no change in behavior, but that's, I would say, probably a general comment, but more specifically, in terms of the success of the brand in the U.S. and especially the development in the first half. I mean, can you maybe highlight a few things where, you know, things have improved significantly? And the third question is actually just a clarification.
When you say that China is up double digits in June, July versus 2019, what would be this growth rate versus 2021, so on a year-on-year comparison? Thank you.
Thank you and bonjour, Antoine. Thank you very much. Regarding your three questions actually, regarding sales. First of all, like-for-like in retail space, from our perspective for the time being, because of, you know, these temporary closures, because of the optimization program that we are doing and the remodeling doesn't make big sense actually to report like-for-like numbers because it's only a small part, and it's changed every quarter-over-quarter. We look at the reported figures. On the other side, I can assure you regarding, and I'm talking about retail space there especially, there, on the retail side, you have seen single-digit space increase in the first half of the year.
Regarding wholesale development, you can say that half of the business is actually coming from additional space that we generated, you know, with BOSS Orange and BOSS Green, and BOSS Camel. This is as a kind of rule of thumb. Your second question regarding the U.S., we are actually very happy with the current development. You know, our specific, I would call it, self-managed comeback of BOSS is clearly visible because, you know, we really changed, you know, the perception of BOSS. We reduced the formal wear share on our product offering. We are doing collaborations like NBA that resonates extremely well with younger consumers. We see that younger cohorts are coming in. This 24/7 lifestyle, right, in BOSS in the U.S. market is really fantastic, the current development.
Yeah, I think it really comes from, you know, from the right product offering together with a big branding refresh, I think going all in the good direction. Actually, we are growing in all channels, in wholesale, retail and in digital in the U.S. market. It's very much broad-based related. The last question was referring to China. I mean, since the Q2 is already over, I can confirm that we are back to growth in July versus 2021.
Thank you very much, Yves. Just, you know, a follow-up on China. When stores reopen, I mean, are you seeing back to normal or more like a sort of a catch-up effect slash pent-up demand and or is it just like, I would say, progressively coming back to normal trends?
Well, I would say it's getting to normal. I think we see actually week over week, we see there constant improvements. You know, you never know in China because tomorrow there can be new lockdowns. We have a kind of cautious view for the second half of the year. I think this is also reflected in our guidance.
Thank you very much.
Thank you.
The next question is coming from Michael Kuhn at Deutsche Bank. Your line is now open.
Yes. Good morning, everyone. Two from my side as well. Firstly, again, back to the guidance, and I know it's always nasty questions, but if I look at your guidance, at the midpoint on EBIT, you basically imply EUR 160 million in the second half. That would be like 13%-14% less than you had in the second half of last year. Even at the upper end, it would be down 10%. I see you have some buffer of safety in here, but maybe some more thoughts on why you guided that way and let's say, what key risk factors you currently see into the second half of the year.
Secondly, on the Russian impairment, EUR 17 million, I think entirely booked in the second quarter. Is your Russian asset base now written down to zero? Are there any remaining risks in Russia, or are you entirely out here? Thank you.
Yes. Good morning, Michael. Thank you very much for your question. I'll start first with the second question. All in all, in the first half of the year, we booked EUR 17 million impairment. Two million in the first Q1 and EUR 15 million in Q2, just to get the numbers right, how we come up to the EUR 17 million. It heavily depends actually on the fluctuation of the Russian ruble. It's a little bit difficult to say how much is the asset base. There is a remaining asset base, but we already in terms of right-of-use assets and fixed assets is what we are alluding to.
We have already depreciated more than half of it, but it all depends on the ruble, right? This gives you a kind of uncertainty if it's really half or for the time being, it's more than half that we already impaired for the Russian business. Regarding the guidance, first of all, I clearly want to mention this, with Q2, I think we have shown, you know, that the top line growth which is broad-based, which even accelerated, which is high quality, which is visible in the gross margin.
Together with the operating leverage that we can achieve, we can really get very fast close to our 12% EBIT that we want to achieve in 2025. I think it's visible what is doable in our business model. I think we have to be very aware of this, and actually we're very happy with the second quarter results. It shows you what the business model can show. With regard to the guidance, you clearly can see, you really have to take it into consideration that we as HUGO BOSS want to invest further. The brand momentum that we enjoy, all the investments that we're doing into the products, the investments that we're doing into the digital investments.
Although there are a lot of macroeconomic uncertainties, I just want to give you the clear message that we will continue to execute on our CLAIM 5 strategy, and this means that we are still clearly in the investment mode, say, in terms of products, in terms of quality investments into the products. In terms of marketing investments, in terms of digital investments, in terms of investments into the store portfolio. We will do this, and this is clearly reflected in our guidance. On the other side, what you can see is clearly regarding freight costs, cost inflation, this remains high and remains an issue, and this is also reflected somewhat in our guidance for the second half of the year.
Clearly all these uncertainties that we see, I think we are maneuvering in very difficult times. I think this has been somehow reflected in our guidance as well. Actually, by the way, if you take H2 in comparison to H1, we want to increase our EBIT margin. Still, if you look at this, there will be a slight improvement that is inherently in there.
Okay, many thanks. That implies, so you could see, let's say, like a little more momentum in OpEx in the second half as you refer to marketing and other investments planned.
Yes. I mean, we will invest and there is cost inflation, which we see this and this is reflected in our guidance.
All right. Thank you. Good luck.
Thank you.
The next question is coming from Manjari Dhar at RBC Capital Markets. Your line is now open.
Hi. Good morning. Thanks for taking my questions. I just had two, if I may. Firstly, given the supply chain disruptions you've been seeing, has this changed how you're thinking about your geographic sourcing profile longer term? Secondly, just sort of building on the earlier question on casual wear versus formal wear split versus shoes and accessories. Is the current split a level that you're happy with, or do you see the potential for that to change further?
Yeah. Good morning, Manjari. Thank you very much for your question. So, the second question I think is pretty easy. I think we are very happy with the current split. We want to be a 24/7 lifestyle brand. I just can repeat this. I think there are a lot of initiatives coming up with all different product groups. So overall we see actually growth coming from all different product areas. I think the split will be rather similar in the near future. Regarding supply chain for the future, I think we have to be aware that for everybody listening, I think we have a very, in comparison to our competitors, a very big footprint actually in the European market, including Turkey.
50% of the suppliers are based in Europe, including Turkey. This is another starting point in comparison to other competitors. Going forward, I think you have made a kind of strategic question. I think in the future, what we intend to do is to nearshore even further. If you have, you know, your market setup being 20% of your net sales will be done in the Americas, 15% in Asia, and 20% and 60% in Europe, I think we go more into this direction overall in terms of supplier setup. This means that we are about to find new suppliers on the American continent as well to supply the American market with the...
This will be a strategic change. This is point one. Secondly, we perceive actually Izmir as a our own factory, our own production site, a big asset in these times of supply chain disruptions. We're gonna increase actually our factory there. There was one unused hall that we are just in these days about to fill. We are hiring more than 1,000 people in Izmir to produce more casual wear items because we have seen that the own production, which makes around like 17%, 18% of the full sourcing volume, is actually a good percentage. This can be increased by another 2-3 percentage points. This ensures a big flexibility actually for our supply chain. I think these are the two directions that we are strategically taking.
Nearshoring, being more proportional to the net sales from a sourcing perspective and investing into the own facility, especially in Izmir, to ensure the high flexibility.
Great. Thank you.
The next question is coming from Jörg Philipp Frey at Warburg Research. Your line is now open.
Yeah. Hello, gentlemen. I also want to understand a bit, a little bit more your guidance. If you look historically, basically, your H2 margins are usually around 2-3 net basis points higher your H2 EBIT margins than H1. Looking what was basically changing now, relative to the first half, while you have higher prices, increased prices in the second half, you have a strong order books and momentum should not be detrimental. You see even some freight rates at a margin coming down, at least in terms of the spot market. While marketing has been high, do you plan higher marketing than in the first half or significantly higher than 8 percentage points?
Is it basically just the risk of to full price sell-through if the market is really deteriorating what you are factoring here in the guidance? Said otherwise, other than risks to full price sell-through, have you any visibility on anything deteriorating substantially relative to the first half in your margin structure?
Morning, Philipp. Thank you very much for your question. I mean, I answered, I think the question from my perspective already. First of all, regarding top line, we have seen no change in consumer demand. Starting into the second half of the year, we are very happy with the current start. However, you know, the macroeconomic uncertainties are very high. We see that freight costs are high and will remain high. We see cost inflation coming from energy costs. There might be some risk coming from the demand side as well, but we don't know as yet. We haven't seen it so far, but there might be a risk.
Having said this and knowing that we continue to invest from a strategic point of view in CLAIM 5, we feel very comfortable with our guidance. That's it.
I understand that's a substantial risk buffer. Probably adding on that one, can you quantify your current full price sell-through? If you judge a bit the sustainability in a normal economic environment, are we currently at a level where you would say, "Hey, we've increased our price value relationship, so this should be kind of new normal in an average economy where we are in full price phase?" Or do you think that you're basically punching above your weight in terms of full price sell-through rate right now?
I think, you know, we enjoy for the time being very good brand momentum. Full price sales in comparison to the last period is clearly going up. We needed less discounts, which I think is a very, very good sign. From my perspective as CFO and COO, I think still, of course, you can improve year-over-year all the time. I don't think that this is from this perspective, over, you know. We continue very good momentum. I think this will prevail in the second half of the year as well.
Thanks a lot, and all the best for H2 as well.
The next question comes from Kathryn Parker at Jefferies. Your line is now open.
Good morning, and thank you for taking my question. My first question is a follow-up to the last one. Touching back on the gross margin, I wondered if you could share the exact impact of the higher full price sell-through on the gross margin. I mean, looking at your helpful chart, it looks like it was around 500 basis points, but I wondered if you could confirm that. Then part two of my question, also on the gross margin. When you gave the 60%-62% range back at the Capital Markets Day, I wanted to check whether this included any impact from higher full price sell-through.
If we want to take a view on the share of the full price business, if we should add on a certain percentage to account for the higher share of full price sales. Thank you.
Follow-up? Yeah. Yes. Thank you very much. Good morning, Kathryn. Regarding the gross margin, I mean, we have indicated you one chart, and I think, you know, the net-net effect was in comparison to prior quarter 230 basis points. All the other effects, actually, you know, freight costs, regional mix and currency have been on the negative side. Clearly, you know, the full price sell-through was a big win of around-ish, I would say 400 basis points. I mean, as a rule of thumb, perhaps this could be a right, the right indication. Regarding the gross margin, I mean, you know that the big driver was especially the quality investments that we did. Yes, we included already a kind of increase.
We have some assumptions regarding full price increase, in our long-term guidance regarding our gross margin. Hello, Kathryn?
Yes. Thank you. Just one follow-up. I mean, what are your expectations for the second half in terms of the impact of the full price business growth? Like, would we still see an elevated growth margin in H2?
Well, we have changed now our assumption. We are saying it will be at least, you know, the prior year one. This is what we announced today. I think we see that, you know, freight costs will remain pretty high. We have now in the first half of the year, I think we have 170 basis points better than last year. I think we have a good tailwind. We have a strong start into the first half of the year. Let's take it from there, right?
Great. Thank you.
The next question is coming from Andreas Riemann at ODDO BHF. Your line is now open.
Yes, good morning. Two questions from my side. The first topic would be the strong wholesale performance. You mentioned better sell-through, but can you also help us and maybe explain, do you gain more shelf space with existing partners or do you actually find new retail partners? This would be question number one. Then China, last year there was the forced labor debate and the consumer boycott. Today, you did not really mention that anymore. Is demand for your product still suffering to a certain extent from that? How about marketing? Can you work with local influencers, testimonials again? Or do most of them still shy away from working with you or maybe from working with Western brands in general? Thanks.
Good morning. Good morning, Andreas. Thank you very much for your questions. First, I start with the China question because it's an easy one. We are not suffering from boycotts or anything. We are able to get local influencer. I think this is good news from a China side. Actually, our business in China is back to normal. There are other issues like there's zero- COVID policy. This is a different thing, but regarding this kind of other issues that come from Xinjiang issues is over and we are back to normal. Regarding the wholesale business, like I said, I mean, we are really we are always saying want to grow more with less. We are really focusing on the big accounts.
We can really see that every account on our top 20 is growing their business. It's actually from this point of view, it's a very broad-based growth that we can see. As I said already, you know, during the Q&A, I would say, you know, that half of the growth that we have been seeing is coming from additional space.
Maybe as a follow-up to the wholesale question, are any partners left in this world that you would like to work with and you're not working with them yet or?
Well, you always find, you know, new wholesale partners. We are saying we have a clear segmentation on the wholesale side in terms of good, better, best. Like I said, I think the growth potential with the existing ones is even higher to find new accounts.
Okay, thanks.
Thank you. Great. Thanks very much. I do not see anyone else queuing up for questions. Let me take over from here and conclude today's conference call. Thanks everybody for dialing in. As always, if there's any follow-up questions, please feel free to contact the investor relations team anytime. Thanks very much for your participation. Have a great summer, great holidays, and speak to you then in a few weeks' time . Thanks very much and bye-bye. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded.