Ladies and gentlemen, welcome to the Q3 2026 results conference call and live webcast. I am Moritz, the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Lena Biberacher, Head of Investor Relations. Please go ahead.
Good morning, ladies and gentlemen, and welcome to our third quarter 2026 results presentation. Today's call will be hosted by Daniel Grieder, CEO of Hugo Boss, and Ivica Maric, CFO and COO. Before we begin, let me remind you that all revenue-related growth rates are on a currency-adjusted basis unless stated otherwise. As usual, please limit your questions to two during the Q&A. With that, let me hand over to Daniel.
Thank you, Lena, and good morning, ladies and gentlemen. Thank you for joining us today. As you can see, we are hosting today's call in a somewhat new constellation, and I would like to take this opportunity to thank Christian Stoehr, who has led our investor relation function for almost nine years and recently decided to pursue new professional opportunities outside of Hugo Boss. Christian has been a highly valued counterpart to many of you and has shaped our capital markets communication over the past years. On behalf of the Managing Board, we wish him all the best for the future. At the same time, I am pleased to introduce our new Head of Investor Relation, Lena Biberacher. She is already well-known to many of you, and I am glad a familiar pair of hands is taking over.
Before we now turn to our quarterly performance, I would like to take a moment to address the development of Hugo Boss over the past few months. It has been a period of meaningful change for our company, most notably following the increased shareholdings of Frasers Group and the appointment of Michael Murray as Chairman of the Supervisory Board. Frasers has been a longstanding and constructive partner of Hugo Boss, both as a customer and as our single largest shareholder. We value the relationship we have built over the past years and look forward to continuing the collaboration in the future. I am personally very pleased that Michael has taken on the role of Chairman. He brings strong experience and deep knowledge of our industry and our business. Most importantly, we share a common view on the strategic direction and untapped potential of Hugo Boss.
I'm convinced that together with the entire Supervisory Board, we will further strengthen Hugo Boss and position our company for sustainable long-term success. This brings me to our leadership team. As communicated, Yves Müller has decided to step down from his role as Chief Financial Officer and Chief Operating Officer for personal reasons and at the end of September. On behalf of the entire Managing Board, I would like to thank Yves again for his strong contribution over the past years, and we wish him all the very best for the future. At the same time, I'm happy to officially welcome Ivica Maric to our Managing Board as new Chief Financial Officer and Chief Operating Officer, effective October 1st. Ivica has been an important part of Hugo Boss for more than two decades, most recently as Deputy CFO and COO.
I will leave it to him to introduce himself in just a moment. For my part, let me say that I'm very much looking forward to shape the future of Hugo Boss together. Let me now turn to our strategy and how it is playing out in the current environment. The industry continues to face a challenging macroeconomic and geopolitical context. Consumer sentiment continues to be weak, and traffic remains under pressure in most markets. In such conditions, clear priorities and disciplined execution are crucial. Against this backdrop, we remain fully focused on executing CLAIM 5 TOUCHDOWN and on the things within our control. The third quarter marked another step in the execution of our strategy. We want to strengthen our brands, improve distribution quality, and focus on profitability and disciplined use of capital.
In the third quarter, Group sales declined by 5%, reflecting our ongoing strategic realignment and the softer demand environment. At the same time, gross margin expanded by 220 basis points to 63.3%, benefiting from our TOUCHDOWN initiatives. Free cash flow before leases increased to EUR 155 million, driven by a reduction in inventories and discipline in working capital. Looking ahead to the final quarter of 2026, we expect that macroeconomic and geopolitical uncertainty will continue to weigh on consumer sentiment. At the same time, protests and social unrest in some key European cities are adding to the broader uncertainty. Overall, volatility remains high, and visibility continues to be limited. Against this backdrop, we have updated our outlook for 2026 to reflect a more cautious view on consumer demand for the remainder of the year.
At the same time, our strategic direction on the CLAIM 5 TOUCHDOWN remains unchanged, and I firmly believe that we are doing the right things. Nevertheless, we acknowledge that there is still work ahead of us, and benefits of the related initiatives will take time to materialize. Let me stress that once more, we are convinced that they will strengthen our business in the long term. With that, let me hand over to Ivica, who will walk you through the key financial developments in Q3, as well as our expectations for the remainder of the year. Ivica, over to you.
Thank you, Daniel, and good morning from my side as well. First of all, let me say that I am very pleased to join you today in my role as CFO and COO of Hugo Boss. I am looking forward to engaging with all of you in the months and quarters ahead. Having joined Hugo Boss in 2005, I have spent more than 20 years with the company, holding various positions across finance, controlling, and business operations. These roles have given me a deep understanding of our organization, our financial and operational processes, and most importantly, the people behind our business. All of that makes me a strong believer in the great potential of our brand and our company. While I know about the importance of continuity for Hugo Boss in its current phase, taking on the responsibilities of CFO and COO is not just about continuing business as usual.
For me, it is about valuing what made us successful in the past while also bringing a fresh perspective and willingness to challenge established ways of thinking and working. My focus is on the long -term rather than the next quarter, and I see my role as setting the right financial and operational course for Hugo Boss. I will use the coming period to review our strategic KPIs, as well as the way we manage our balance sheet and cash flows. This is a continuous process aimed at keeping our financial framework aligned with the current market environment and our strategic priorities under CLAIM 5 TOUCHDOWN. Before we dive too much into what lies ahead of us, let us first conclude on our third quarter results. Group sales declined by 5% in the third quarter and 7% year -to -date.
From a regional perspective, EMEA recorded a sales decline of 7% in the third quarter. This development reflects subdued consumer demand, first and foremost in France and the U.K., and a generally challenging macro environment. In the Americas, sales were 3% below the prior year level, with the U.S. performing slightly better than the region overall. In Asia Pacific, sales declined by 2%, driven by softer revenues in China and Southeast Asia Pacific. From a channel perspective, retail revenues declined by 8% in Q3, mainly due to lower store traffic, the ongoing optimization of our store network, as well as our full price agenda. Wholesale revenues decreased by 2%. The more moderate decline compared to previous quarters also reflects an easier comparison base following a shift in deliveries from the third into the fourth quarter of last year.
At the same time, we remain focused on enhancing distribution quality, while order patterns among partners remained cautious. Looking at the earnings development, gross margin expanded by 220 basis points to 63.6%, supported by sourcing efficiencies and optimized pricing. Operating expenses increased by 2% year-over-year, mainly due to higher administration expenses. Selling and marketing costs, however, benefited from ongoing cost discipline and productivity improvements. As a percentage of sales, operating expenses rose to 54.8%. As a result, EBIT decreased by 15% to EUR 81 million in the third quarter, corresponding to an EBIT margin of 8.6%. Year to date, EBIT stands at EUR 175 million with a margin of 6.4%. Turning to working capital and cash generation. In the third quarter, we made progress in reducing inventories and strengthening our balance sheet.
On a currency-adjusted basis, inventories were down 14% year-over-year, lowering inventory levels to 23.5% of group sales. This reflects disciplined buying, more focused assortments, and ongoing inventory optimization. Trade net working capital also improved. On a moving four-quarter basis, trade net working capital as percentage of sales declined by 100 basis points to 19.2%. This reflects our inventory management as well as lower receivables. Supported by our working capital discipline, free cash flow before leases increased to EUR 155 million in the third quarter. With CapEx at 3.1% of sales, we maintained a selective approach to capital expenditure and focused on strategic priorities in retail, digital, and infrastructure. Looking ahead to the remainder of the year, the macroeconomic environment remains uncertain and highly volatile. As such, we expect continued pressure on consumer sentiment and traffic, resulting in softer demand assumptions for the remainder of 2026.
Given these uncertainties, and in the light of our performance year to date, we have updated our outlook for fiscal year 2026. We now anticipate currency-adjusted group sales to decline in the high single-digit percentage range. EBIT is now expected to develop in a range of EUR 250 million-EUR 300 million. On the one hand, we expect higher non-cash depreciation and amortization as we shorten the useful lives of selected IT and software assets to better reflect today's fast-moving technology environment. At the same time, softer demand assumptions will result in higher operating deleverage. This said, we expect further progress when it comes to gross margin expansion and ongoing cost discipline in Q4. Turning to the balance sheet. For fiscal year 2026, we now expect trade net working capital to come in around 21% of group sales.
While disciplined inventory management remains a clear priority, the higher ratio mainly reflects anticipated lower trade payables following recent adjustments to our supplier payment terms. Finally, on CapEx, we now expect investments of between 4% and 5% of group sales. Importantly, this adjustment does not change our selective approach to capital expenditure, but rather reflects the strategic acquisition of a previously leased logistics property at our headquarters. As a natural consequence of the adjusted EBIT, working capital, and CapEx guidance, free cash flow in 2026 is now expected to remain well below the level originally anticipated under CLAIM 5 TOUCHDOWN. However, this is not to be mistaken for a deterioration in the underlying cash generation of our business. Our ability to generate cash from operations remains firmly intact. These adaptions already illustrate the approach to financial steering that I referred to earlier.
We are prepared to adjust our framework where necessary, but always on the basis of financial discipline, operational efficiency, and sustainable shareholder value creation. With that, let me hand back to Daniel for his closing remarks. Daniel, over to you.
Thank you, Ivica. Ladies and gentlemen, let me close with three key messages. First, the third quarter underlined our continued execution of CLAIM 5 TOUCHDOWN. The gross margin improved over the first nine months, shows that our focus on quality and profitability is having an impact. We are convinced that we are taking the right strategic steps to structurally strengthen Hugo Boss while recognizing that more work needs to be done. Second, we remain very realistic about the environment. Consumer demand and traffic are weak, and we expect this to continue to weigh on our top line. Our response is straightforward: focus on what we can control, execute with discipline, and steer the business in a matured way. Third, this mindset is reflected in our updated 2026 outlook. Given the limited visibility, it is the right thing to take a cautious view.
But none of these changes our strategic directions or roadmap or our conviction in the long-term potential of Hugo Boss and in the value we can create over time. Thank you very much for your attention. Ivica and I are now happy to take your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Manjari Dhar from RBC. Please go ahead.
Thank you. Good morning. Thank you for the presentation and for taking my questions. My first question was just on the guidance shift. I just wondered if you could give us an idea of how much of the EBIT reduction is driven by the depreciation change, and maybe some color on what has driven the reviewed useful life of these tech assets. Why this come up in Q3? My second question is, I wondered if you could give some color on what impact you have seen so far from protests in various European countries. Thank you.
Okay, Manjari, thank you very much for your question. I will take your first one on the EBIT impact and the magnitudes of the adjustments regarding the D&A. The adjustment of our EBIT outlook is driven by two factors of roughly equal weight. The first one is the operating deleverage reflecting the reduction in our sales expectations for the remainder of the year. The second one is, as you mentioned, the higher expected D&A, particularly related to IT and software assets, as we want to better reflect the rapidly evolving technology environment in our D&A assumptions.
I take the second question. Yes, the protests, of course, are reflecting and affecting us, and the social unrest in some key European cities are adding to the broader uncertainty, that is for sure. In France, four BOSS stores in Grenoble, Lyon, Marseille, and Bordeaux were looted and severely damaged. While the Bordeaux store has since reopened, the remaining three are still closed. All other stores across France remain open. For example, in Germany, we proactively reduced opening hours or temporarily closed five stores in Stuttgart, Frankfurt, Berlin, Hamburg, and Düsseldorf in anticipation of demonstrations. In other markets where protests have taken place, including Italy and Spain, none of our stores have been affected. We know from previous periods of social unrest that this can weigh on consumer sentiment, of course.
We continue to monitor the situation closely, so it is too early to fully assess the impact on our business.
Thank you. That is very clear.
Thank you.
Then the next question comes from Thomas Chauvet from Citi. Please go ahead.
Good morning, gentlemen. I have two questions, please. The first one on wholesale. Could you comment on the spring/summer 2027 order book intake? Has it improved sequentially versus autumn/winter? Do you see 2027 as a possibility for wholesale to return to growth with the TOUCHDOWN, the reset you did this year? Secondly, Ivica, perhaps on your plan for further improvements in the operations. You mentioned you've been at Hugo Boss for over 20 years. Where do you see areas of operational improvements for gross margin and OpEx efficiency to drive margin recovery, particularly on the gross margin? Obviously, you will anniversary a significant sourcing gains and full price sales achieved in the past couple of years. Also, perhaps face increased commodity headwinds and freight costs, and I see consensus for gross margin next year is about flat year-on-year, so very different trajectory compared to this year.
Could you perhaps comment, I know it's early days, but on that GM trajectory you see for the company?
Okay. Thank you, Thomas, for your questions. I take the first two. First of all, I talk about the order intake for the upcoming season. What we can say is in line with CLAIM 5 TOUCHDOWN, we continue to sharpen the wholesale distribution. We already announced that. At the same time, the wholesale environment remains cautious, reflecting the ongoing uncertainty in consumer demand and limited visibility across the industry. Against this backdrop, order intake for the upcoming season remains below prior year levels and broadly consistent with the trends we have seen in recent quarters. I think also importantly to add is the engagement with our key strategic partner remains good and is giving us confidence in the long-term development in our wholesale business.
As you can see, we are an anchor brand. Therefore, we remain relevant to all our wholesale partners in the different regions, I would say. That is the number one question. I would like to frame also the outlook for 2027. Let me explain a bit the market environment. We think it continues to be shaped by macroeconomic and geopolitical uncertainty, that is clear. Second, I think given the continued volatility and the limited visibility, we expect softer consumer demand for the rest of 2026. That is also a given. On top of that, the start of Q4 has not yet indicated a meaningful change in these trends. So, the visibility into 2027 remains limited for us, and the market environment has certainly not become any easier since we initially communicated the strategy.
I would like to underline also the demand trends remain under pressure, and the order intake suggests a cautious wholesale environment. But again, it is too early to be more precise than this. The third question, Ivica takes.
Yeah. Happy to take the question on gross margin and OpEx. First of all, just building on what Daniel said, we definitely need to stay realistic and consider the overall environment and focus on what we can control in executing our CLAIM 5 TOUCHDOWN initiatives. On gross margin, we see headwinds coming from commodities, but definitely we also see some opportunities that we were working on in the last few quarters, and you see quarter-over-quarter the progressing increase of our gross margin based on all the initiatives around CLAIM 5 TOUCHDOWN. Like, we started to also reduce the collection size. We will continue to optimize our supplier portfolio and consolidate there. So I am quite confident that we can continue further leveraging on gross margin opportunities even beyond 2026.
On OpEx, I mean, we need to review everything based on the consumer sentiments that we see right now and also have a deep dive into our OpEx for the years to come. But I think it's still too early to give you more visibility on that, and you will understand that after only one month into my new role, I will take some more weeks to get a clear assessment on this and give you an update once we concluded that assessment. While on gross margin, I've been working already in my previous role, I can tell you that I'm quite confident that we can continue optimizing and increasing going forward there.
Thank you.
The next question comes from Chris Wootton from Frasers Group PLC. Please go ahead.
Good morning, gentlemen. I have one question. This one's actually for Daniel. We were not allowed and were prevented from asking this question in the summer, and that question is, are you totally comfortable with your current guidance on average three-year free cash flow pre-IFRS 16 of EUR 300 million per year? And I'm really just looking for a yes or a no.
Thank you, Chris. I have to say no, but I would like to give some color to it. For 2026, the free cash flow will be impacted by several factors, and that includes the lower EBIT outlook, the higher net working capital, the expectation of the increased CapEx guidance, and so on. In particular, we now expect less support from working capital than previously anticipated, mainly reflecting the lower year-end trade payable position. At the same time, I would say we continue to evaluate opportunities that can strengthen the quality and resilience of the business over the long term, even if they may involve short-term cash impact. Importantly, none of the changes the underlying cash generation ability of our business. Anything to add from your side?
As you already explained, and as I outlined in my presentation, we already clearly said that for this year, we will be well below the originally anticipated cash flow. For the outer years, as we said, visibility is still quite low. We will need to reassess that as well and give you an update on the overall situation, but Daniel gave you already the answer.
Yeah, I would say if you're not confident, you should certainly, I would like to think, be looking at that guidance. I mean, from my personal perspective, it almost seems the sun, the moon, and Saturn need to align for you to hit that, especially with amongst other things, your inventory going down and your floor space going down. I am not sure how the sales are going to hit it, at the very least. That's my opinion.
Understood.
Thank you, gents. That's all for me.
As a reminder, if you would like to ask a question, you may press star and one. The next question comes from Anthony Charchafji from BNP Paribas. Please go ahead.
Yes, thank you. It is Anthony at BNP Paribas. I have two questions, please. The first one is on the new shareholding structure. Curious to know how it is impacting the strategy already on numbers, but also on the organization. We have seen also some departure at BOSS recently, also including the CEO of the Americas. I mean, could you elaborate on what has changed so far and if deeper organizational changes are expected? My second one, yeah, sorry to come back again on 2027. You tweaked the 2026 guidance, but 2027, I think in the TOUCHDOWN, CLAIM 5, you still expected some kind of growth. I am just curious, I mean, given the gross margin next year facing pressure, as most of the buying in 2026 was done early, so some inflationary pressure. Also, lower orders and purchase to get rid of inventory that helped the net working capital.
You mentioned wholesale order book likely still down something like negative mid-single digit, and OpEx is back at growth. So really my question is for 2027, can it be another realignment year? Thank you.
Okay. Thank you, Anthony. I will take the first questions regarding Frasers. I clearly want to say we have a regular and constructive dialogue with Frasers, and we value them as a significant and long-term shareholder. We know them already since a few years, and we have continuously good dialogue with them. As with all the shareholders, our engagement is guided by the objective of supporting the long-term success of Hugo Boss and creating sustainable value for all shareholders. The recent increase in the shareholding does not materially change Frasers Group influence and our business on the day-to-day operation. However, we share our point of view, and we try to add support, or we get their support, especially where we can learn something from it, and that is clearly coming and reflecting from their retail know-how.
That is actually a good thing, and that is something we can share, that is something that should optimize, and we do kind of best practice on that. Based on when you ask me, is anything changing on the strategy, and based on their public statement and ongoing dialogues, Frasers Group supports our strategic direction and is also supporting us in our discipline, the execution of CLAIM 5. On top of it, I would say that Michael's election to Chairman provides us an opportunity to have strong leadership in the Supervisory Board, and his know-how and his experience in the market is adding really big, good support into our business, into our team, and also to me. I see this as constructive and really positive.
The last thing in terms of the changement in the leadership in America or also here with the CFO and so on has nothing to do with Frasers Group. That is something that the management board here is dealing with, and I just want to reinforce that Yves left because of personal reasons. He had built over the years a great successor, which is sitting next to me, Ivica. Stefan has nothing to do with that. This is really two different subjects. I think that is on that. Ivica, do you want to take?
I can take the second question on 2027. I mean, you will understand that we will not comment on specific expectations for periods beyond our current guidance horizon, which is 2026. At the same time, we see that external environment remains highly volatile and visibility is limited. We also commented on the wholesale order intake, and the start of Q4 has not shown a meaningful change in trends. We remain realistic about the environment and focus on what we can control. The challenging environment does not change our strategic direction. We definitely focus on executing CLAIM 5, but it is still a lot of work ahead of us, as outlined by Daniel before, and this will take time.
We will not measure success, at least from my perspective, for 2027 on top-line performance, but rather on implementation of strategic measures and ensuring mid-to-long-term value creation, and that is what we are focusing on.
And maybe I can add, I just want to underline, I said that in the beginning, given the continued volatility and limited visibility, we expect a softer consumer demand for the rest of 2026, which is our main season. With all what's going on, it's just difficult to see, to get visibility. Therefore, the start of Q4, as I said also, has not yet indicated any meaningful changes there. Therefore, visibility to 2027 really remains limited, it's too early to precise. But it does not change, let me clear emphasize that, our strategic direction, our roadmap, our conviction in the long-term potential of Hugo Boss and the value we can create over time.
Okay, everyone. That completes already today's conference call. As usual, as you know it from the past, rest assured, everyone that didn't get the chance to ask a question, we will follow up with you. In my new role, I'm very much looking forward to connecting with all of you in the coming weeks and months and continuing our trustful and continuous dialogue. Thank you for your participation, goodbye.
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