Earnings Call: Q2 2020

Aug 4, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the HUGO BOSS Second Quarter Results 2020 Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I must advise you that this conference is being recorded today. I would now like to hand over to Christian Stohr, Head of Investor Relations. Please go ahead, sir. Yes. Thank you, Maria, and good afternoon, ladies and gentlemen. Welcome to our Q2 2020 financial results presentation. Today's conference call will be hosted by Yves Miller, CFO of HUGO BOSS and spokesperson of the Managing Board. As always, during the Q and A session, I kindly ask you to limit your questions to a maximum of 2 to allow everybody to ask his or her questions. There's a lot to cover today. So without any further ado, let's get started. And over to you, Yves. Thank you, Christian, and good afternoon, ladies and gentlemen. Also from my side, a very warm welcome to all of you. I hope you and your families are all safe and sound during these difficult times. In the next 25 minutes, I will guide you through our Q2 operational and financial performance. I will also elaborate in detail on the progress we have made when it comes to executing our measures aimed at protecting the financial stability of our company during these extraordinary situations. But first, allow me to take a step back and reflect on some fundamental remarks with regard to COVID-nineteen. First and foremost, a global and severe crisis like the COVID-nineteen pandemic calls for companies to take a clear stance. As a global corporation, HUGO BOSS is aware of its responsibility to people, society and the environment. The relevance of corporate responsibility has never become more evident as in fiscal year 2020. In this context, prioritizing the safety and well-being of employees, customers and partners forms an essential part of our company's responsibility. Therefore, our decision to temporarily close a large part of our global store network at an early stage in the pandemic was, without a doubt, the right thing to do. And while this decision weighed heavily in our financial performance, in particular in the Q2, it was simply the only alternative. Secondly, digitization has proven to be more important than ever before as COVID-nineteen has further accelerated the ongoing consumer shift from offline to online. As you are all aware, the digital transformation of our business model, together with the strong push of our own online business, has been an integral part of our strategy for several years. As the industry continues to face an unprecedented situation and consumer behavior changes towards online, we will further accelerate our digital push in the years to come to ultimately tap the full potential of digitalization. In this context, during the Q2, we strongly accelerated the international rollout of our online store hugoboss.com by tapping into 22 additional markets. And with Canada and Mexico, the next two markets are just about to be onboarded, actually tomorrow. Last but not least, the COVID-nineteen crisis has shown that it's crucial not to overlook important challenges in our society. While coping with the economic consequences of the pandemic requires our full intention, it is equally important to push ahead with important social topics such as diversity and sustainability, 2 subjects that are absolutely essential for HUGO VOS. While diversity forms an integral part of our corporate culture, recent events have shown that we can and must do even more. Therefore, we are establishing the position of Global Head of Diversity and Inclusion, who will address the topics of equally and diversity across our company as well as a global diversity task force to implement initiatives and measures that encourage an open dialogue worldwide. At the same time, we are making further progress across our many sustainability initiatives. Most notably, we are continuing to increase the share of sustainable materials and products in our collections. Our successful vegan suit and our traceable wool collection, both being very well received globally, are just two example in this regard. As a company, we assume full responsibility for the economic, ecological and social impacts of our business activities before, during and after COVID-nineteen. And while putting people first will remain our guiding principle, we will continue to focus strongly on the operational recovery of our business. Therefore, let's now take a closer look at our Q2 performance. As outlined to you back in May, we implemented comprehensive measures in the magnitude of around €600,000,000 aimed at protecting cash flow in fiscal year 2020. Executing these measures was the top priority in Q2, and I'm pleased to report that we have made substantial progress within all areas. Starting with operating expenses, where we realized additional savings of around EUR 100,000,000 in Q2, primarily reflecting significant personal expenses as well as rental savings. I will elaborate on these savings in more detail later on when we're discussing the quarterly profit and loss. Further cost savings of around €50,000,000 have meanwhile been implemented, which will ensure incremental OpEx savings of at least €150,000,000 for the full year. Secondly, we adjusted our capital expenditure by postponing all nonessential retail and IT investments. Regarding our target to cut our CapEx budget for the current year by around €50,000,000 we have already freed up additional cash flow of at least EUR 40,000,000 by the end of June, reflecting our strict approach during the Q2. At least EUR 10,000,000 will be generated over the next months. Thirdly, and equally as important, we have put a strong emphasis on protecting our inventory position during the Q2, a generally more cautious approach with regard to our never out of stock business and immediate adjustment of our own production to the lower demand as well as a timing shift in terms of the delivery of our 4 winter collection to July has enabled us to predict cash flow of around EUR 100,000,000 in Q2. As we have significantly cut back merchandise for the upcoming fall winter season, we will realize another €100,000,000 in cash flow protection in the second half of the year. And last but not least, and as you are all aware, we suspended the dividend payment for fiscal year 2019, except for the legal minimum dividend of $0.04 per share. The retention of net profit has strengthened our financial flexibility by almost €190,000,000 during the Q2 of 2020. Overall, our relentless focus on executing these four measures, together with the temporary reduction in income tax payment, has yielded strong cash flow generation in Q2 as reflected by a positive free cash flow of €39,000,000 in the 2nd quarter. Consequently, we were able to compensate for around half of the negative free cash flow development in Q1, leading to a total free cash flow for the first half of twenty twenty of minus EUR46 1,000,000. Securing sufficient liquidity is and will remain one of our top priorities for the remainder of the year. In this context, I am pleased to confirm that we have successfully exercised the increased option of our existing revolving syndicated loan. Letter now totals to €633,000,000 of which €212 were utilized at the end of June. In addition, we have secured further credit commitments totaling €275,000,000 with a maturity date of June 2022. At the end of the Q2, however, there was no need for utilizing these additional credit facilities. With this, let's now take a closer look at how COVID-nineteen has impacted our sales and earnings development in Q2, starting with this top line. With approximately 50% of our global store network closed on average during the course of Q2, our business was significantly impacted by the pandemic and the corresponding lockdowns. This was particularly evident in Europe and the Americans, by far our largest regions. In Europe, an average of 60% of our stores and shop in shops remain closed in the 2nd quarter. Some important markets, such as Great Britain, even saw its door closed for almost the entire 3 months period. In the Americas, the average store closure rate in Q2 was even higher at 70%. This reflects long lasting store closures as a result of the severe lockdown in both markets, the U. S. As well as Latin America. The picture in Asia Pacific varied by market. While our stores in Mainland China were able to welcome customers throughout the whole quarter, other markets, including Southeast Asia, Australia and Japan, also had to close their doors for a significant amount of time. Still, the overall store closure rate was well below the group average in Q2. Altogether, our global store closure rate was more pronounced in April and only started to recover gradually throughout the month of May before returning to a rather normalized level at the end of June. We ended the 2nd quarter with around 90% of our global storm network back in business. The temporary store closures inevitably weighed on our brick and mortar retail business in the Q2. Consequently, currency adjusted sales in own retail declined by 58%, with comp store sales down 59% as compared to the prior year period. Also, our global wholesale business faced a challenging quarter. Large scale temporary closures of wholesale points of sales resulted in significantly lower deliveries to partners in Europe and the Americas. As a result, sales in the wholesale business were down 64% in Q2. As a consequence of the widespread temporary store closures, the sharp decline in consumer sentiment as well as international travel restrictions, group sales declined to EUR 275,000,000 in the second quarter. This corresponds to a decrease of 59% as compared to the prior year, both in the reporting currency as well as currency adjusted. This brings me to the regions where currency adjusted sales in Europe were down 59% on the prior year level. Due to temporary closures of own retail as well as wholesale partners, points of sale, all key markets posted double digit sales declines. In particular, more than 90% of our own stores in shop in shops remained closed for at least 5 weeks in the Q2, severely weighing on our brick and mortar business. In Germany, where the first stores reopened already at the beginning of May, revenues declines were less pronounced than the region's other markets, including Spain, Italy and France. And top of temporary store closures, business in those countries also suffered from significantly lower tourist flows. Also, Great Britain lagged behind as the first stores only reopened towards the end of the second quarter. Overall, the regional sales performance in own retail was quite comparable to that of the wholesale channel, with June having seen a clear recovery in both channels as compared to the months of April May. Let's now move over to the Americas, where currency adjusted sales were down 82% in the 2nd quarter. The extent of the revenue decline was quite similar across the region's key markets as the lockdown and the corresponding temporary closures weighed strongly on the overall performance. And while more than half of our regional store network remained closed for more than 9 weeks in the Q2, some important BOSS stores, such as the World Trade Center or Columbus Circle in New York, even remained closed throughout the entire Q2. Our U. S. Wholesale business was equally impacted by temporary closures of wholesale points of sales as reflected by significantly lower deliveries to important partner accounts. Besides this, our U. S. Business was also burdened by the unrest and demonstrations in May June, which have put an additional strain on consumer sentiment. To conclude on the regions, currency adjusted sales in Asia Pacific were down 36%. With the exception of Mainland China, all of the region's key markets were affected by broader temporary store closures as compared to the Q1. This particularly impacted markets such as Southeast Asia, Australia and Japan, where our stores were closed by more than 6 weeks on average during the Q2. In addition, business in Hong Kong Macau continued to severely suffer from missing tourist flows. Please bear in mind that in these two markets, we usually generate around 75% of sales from tourists. Mainland China, a strategically important market for Fugro Boss, was the clear bright spot in Q2 as it continued its strong recovery that had already started back in March. After returning to growth in May, currency adjusted sales further accelerated to double digit growth in the month of June, resulting in a currency adjusted 4% increase in Mainland China during the Q2. This was driven by a repatriation of Chinese spend and overall improvement in consumer sentiment, a strong conversion in brick and mortar retail as well as triple digit growth in the market's own online business. Another bright spot was the stellar performance of our own online business, which not only continued its double digit growth trajectory in the Q2 but even saw a further acceleration. At 74%, currency adjusted sales growth on hugoboss.com and on multibrand platforms operate in the concession model picked up noticeably in Q2 with growth being broad based across all three regions, each of them recording strong double digit growth. This resulted in the period from April to June marking the strongest quarterly performance out of 11 consecutive quarters with significant double digit online sales growth for HUGO BOSS. Remarkably, the strong online growth was not only driven by returning customers but also by a strong increase in first time customers as compared to the prior year period. While this confirms the increasing shift in consumer behavior from offline to online, it is particularly encouraging that millennials, meanwhile, belong to the fastest growing customer group, clearly indicating that our web offerings resonate particularly well with younger customers. To conclude my comments on the top line, let's take a closer look at the sales development by brand in wearing occasion. As you would expect, the economic consequences of COVID-nineteen weighed on both brands, BOSS and HUGO, with currency adjusted revenues down 60% 50%, respectively. During the Q2, in particular, sales decline in casualwear and athleisure were less pronounced than in formalwear. This was especially true for our HUGO brand, where sales in casualwear only declined at a low double digit rate. Thinking about the different wearing occasions, allow me to make a few general remarks on the topic of formalwear versus casualwear and the trends that we have been observing over recent months. Fiscal year 2020 will most likely be a rather challenging year for the overall formalwear market. This also has to do with companies enabling their employees to work remotely from home. By far, the bigger impact, however, is directly attributable to social distancing as well as a general lack of events and occasions from weddings, promenades, summer parties to company events as well as business trips. While the absence of these types of events temporary waste on our Formal Wear business, we expect a clear and strong rebound once social life starts to normalize. Our Formal Wear business continues to be of great importance of our company as it is the DNA and heritage of HUGO BOSS. However, at around 40%, the share of sales being generated from formalwear has clearly come down in recent years. Within formalwear, heritage tailoring today accounts for less than half of sales. In contrast, modern concepts and offerings such as mix and match, stretch tailoring or the broken suit have consistently gained relevance and will probably continue to do so in the coming years. We are well prepared to capture and lead the trend towards casual tailoring, which will be a focal point of the upcoming fallwinter 2020 and springsummer 2021 collections. Casualwear, on the other hand, has successfully proven its ability to be more resilient in the current environment as it directly captures the trend towards a more relaxed clothing style and many consumers' desire to dress in a sporty style without compromising on value or quality. Now casualization is a phenomenon that has been around for almost a decade, and it joined strong momentum for many years. This propelled the share of our casual business to meanwhile over 50% of group sales. And we expect COVID-nineteen to accelerate the trend towards a more casual lifestyle even further. We will continue to focus relentlessly on driving the further casualization of our business model across all types of wearing occasions. Now ladies and gentlemen, this closes my remarks on the top line. So let's now move on the remaining P and L items. Starting with the gross margin, which decreased to 54.6% in the 2nd quarter. More than 90% of the gross margin decline is a direct consequence of an inventory write down of €25,000,000 predominantly relating to the springsummer 2020 collection. The sale of this collection was significantly affected by temporary store closures in the wake of the pandemic. In addition to this, slightly higher markdowns also contributed to the gross margin decline. Other factors such as channel mix or currency effects had only negligible effect on the gross margin development in Q2 and largely compensated for each other. Moving over to our operating result in the second quarter, where the sales decline, together with the lower gross profit, inevitably weighed on our EBIT development. At the same time, we were able to considerably cut our underlying operating expenses, therefore, cushioning the economic consequences of COVID-nineteen to some extent. Overall, our underlying operating expenses decreased a strong 25% to €274,000,000 in Q2. This development was largely driven by underlying selling and distribution expenses, which saw a 31% decline, reflecting the cost saving measures that we have implemented in the wake of the pandemic. In addition to lower variable rents, reflecting the temporary store closures, we successfully renegotiated rental contracts in key markets, resulting in rent beliefs as well as rent deferrals. We also generated significant payroll savings as we reduced working hours and personnel costs for the group's national and international subsidiaries. This also included the implementation of short time work as well as putting a global hiring freeze into effect. While the magnitude of the rental and payroll savings were quite comparable, together, they contributed more than 80% to the OpEx savings achieved in Q2. We also spent considerably less on print media advertising and physical marketing events. Finally, we also cut back on all nonbusiness critical expenses. We now move on to administration expenses, which declined 2% versus the prior year level despite one off expenses in the mid single digit €1,000,000 range was primarily related to managing board changes. This development was largely due to a reduction in payroll costs as well as a general halt on non business critical corporate expenses, including significantly lower travel expenses. As a result, underlying EBIT in the 2nd quarter totaled minus €124,000,000 compared to plus €80,000,000 in the same period last year, in line with our projections from early May. As you have seen from our announcement earlier this morning, during the Q2, we have recorded noncash impairment charges in the amount of EUR 125,000,000 These impairment charges were entirely attributable to the pandemic's negative impact on our retail business as they primarily relate to impairments for right of use assets in the amount of €88,000,000 as well as fixed store assets totaling €33,000,000 In addition, we recorded a small goodwill impairment of €4,000,000 related to our sales unit in Australia. Considering these noncash impairment charges, reported EBIT amounted to minus 2 €50,000,000 in Q2. To conclude on quarterly profit and loss, net income, excluding the aforementioned impairment charges, amounted to minus €96,000,000 The decline of net income was less pronounced than that of EBIT, reflecting a tax credit as a result of pretax loss incurred in the second quarter. With this, let's now take a quick look at the balance sheet. Currency adjusted inventories increased 2% in the Q2. The muted inventory growth was supported by the successful execution of our initiatives to significantly reduce inventory inflow. Besides this, the write down of inventories for the springsummer 2020 season also curbed inventory growth. When excluding the impact of the change in the basis of the consolidation of our entity in the Middle East, inventories would have developed even broadly stable year on year. At the end of Q2, trade net working capital was 7% above the prior year level, currency adjusted, reflecting the slight increase in inventories as well as lower trade payables. This was partly offset by lower trade receivables as a result of lower wholesale sales. Capital expenditure declined by 66% in the 2nd quarter as almost as most retail and IT investments were postponed to protect cash flow during the pandemic. However, business critical investments still took place, including the relocation of our important BOSS store in New York Soho's Dixit, which reopened its doors to customers just a few days ago. Now before I come to an end, ladies and gentlemen, allow me to say a few words on our expectation for the full year and the second half in particular. While the further development of the pandemic in many key markets remained unchanged uncertain, something that makes it impossible for us to provide you with a reliable sales and earnings forecast for the full year 2020 today, we remain optimistic that the global retail environment will continue to gradually improve. This, in turn, should also positively impact our sales and earnings development in the second half of the year and allow us to make further progress along our overall recovery, which started at the beginning of May. Retail sales trends during the Q2 have showed a clear sequential improvement month by month, with own retail sales in June down only 35% to 40% as compared to the prior year level. This compares to almost minus 80% during the month of April. The overall positive trend has also continued so far in the Q3 as we have recorded further improvements in our global retail operations during the month of July. This became particularly evident in Asia Pacific, while also most European markets were able to continue their gradual recovery, despite the ongoing weakness in international tourism. On the other hand, business in the Americas continues to be impacted by the further spread of COVID-nineteen in larger parts of the U. S. And Latin America. And with this, ladies and gentlemen, I'm now happy to take your questions. Thank you. The first question is coming from the line of Thomas Joubert from Citi. Please go ahead. Good afternoon, Eve and Christian. Thanks for taking my question. I'll limit myself to 2. They're both on the online business. Firstly, earlier this year, I think you said online was now clearly margin accretive, thanks to the higher share of variable cost, higher baskets and low returns. I guess the profitability in Q2 must have increased obviously further. Can you share with us what you think medium term would be the margin differential between online and physical retail, obviously, based on a fair allocation of costs? And secondly, in light of the explosive growth you're having online, do you feel the need, if to make changes to your online strategy or adapt the infrastructure before your new CEO joins in a bit less than a year to make sure you don't miss on revenue and profit opportunities? Thank you, Thomas. Good afternoon to you. Thank you very much for your questions. So clearly, what I can confirm regarding online that if you look at the channel P and Ls, clearly, the both online channels, hugoboss.com and concession, have the highest EBIT return in terms of our retail channels, and this including freestanding stores, shop in shop and outlets. And this is good depending on the different models between to a mid single digit percentage points in EBIT improvement in the online sector. And on top of this, what I have to say is because this is all based on the variable costs, I would even assume that the risk profile in the online business is less pronounced than in the brick and mortar business. So clearly, a point that we are strategically pushing. You were referring to structural changes. As you can imagine, I have now the full responsibility for this kind of business. I we clearly took the decision based on the financial strength that we have generated now in the last quarter that we clearly invest in the online sector. The evidence is clearly that we made this press announcement back in the beginning of July that we added more 20 2 countries into the hugoboss.com portfolio. In addition, tomorrow, we will launch Canada and Mexico. We will further insert more concession partners into the business. So in the second half of the year of 2020, you can expect that Amazon Europe and some major countries will also join into the concession partner program. So these are a lot of initiatives that we are taking in order to invest into the online business. And we are very confident that by the year 2022, like we always say, that we can exceed the €400,000,000 that we were pointing out to the capital market. I'm very much convinced that we can overachieve this number, and we do everything with this regard to accelerate the growth in this kind of area. And I often get the question whether there are some investments required regarding the fulfillment. I still I can clearly say with so that our fulfillment capacities are good for €500,000,000 of net sales. Thank you. Next question is coming from the line of Jurgen Kohl from Kepler. I was wondering if you said that in specifically in one of your prepared remarks, you said the gross margin had some kind of impact from markdowns. However, they were just slight. And so I was wondering if how shall I understand that because we all noticed, I guess, a heavy discounting, especially on your website. So in or was all the write down basically taken care of the inventory topic? And also, in this respect, how long do you think this aggressive discounting will last? And the second question is, again, on the online business, 74% growth, I think. And how much of that was due to additional concession business, especially in the second quarter? Thank you very much, Jurgen. Good afternoon. So regarding the gross margin, I said during my presentation, of course, there was a big deterioration versus the Q2 in 2019. And it can be explained by 90%, 90 of this decline can be explained by the inventory valuation that we took. This is the 25 €1,000,000 write down that we did in Q2 2020. And based on this, let's take it the small net sales basis, a big effect and this is 90% of the story. So this means, on the contrary, that the markdown was good, explains on the other side, 10% of this decrease versus prior year. And if you take it from an absolute amount of gross margin, it is fairly low. And of course, we saw some promotional activities. But clearly, you have to consider the different channels, especially the recovery in China, which is the most profitable market in Mainland China, was a kind of a tailwind that we were having. And so this explains overall our margin development. So I was not I'm not very anxious about our rebates or discounts that we were granting in Q2. I'm pretty much convinced that discounting because overall in the industry, there's a lot of inventories in the books, in our books and in the books of the competitors. And of course, we will see that the sales period in Q2 will be longer and that there will be markdowns to come. But I don't see that this will be a tremendous issue for the second half of the year. And then for the second question, so clearly regarding dotcom, we had strong double digit growth in Q2 with our hugoboss.combusiness, which is very good because this makes us independent from the concession business. And the concession business more than doubled in Q2 in comparison to the last year's quarters. Very good. All the best. Thank you. Thank you. Thank you. Next question is coming from the line of China Mistry from Deutsche Bank. Please go ahead. Hi, Eben and Christian. I've also got two questions. Firstly, the commentary that you gave on growth rates in June was really helpful. But I wonder if you could quantify what growth rates you saw in your key reporting regions. And also, did you see Mainland China growth rates accelerate in July? My second question is around how we should think about cost savings in the second half of the year? How much of the savings that Esal in Q2 were occurring? And as a result, would you expect OpEx to also decline year on year in the second half of the year? Thank you. Sorry. Hello, Jenna. It was difficult to get your first question. I hardly understood your question. But I think it was you were talking about the exit rate in June. So like I said, so the decline was between 35% percent 40%. And what we could clearly see was a sequential improvement starting actually already back in April, if you see the different curves. So really moving week by week, we saw an improvement. And I can say that confirm that this sequential improvement continued in July. Of course, there are different regions. So APAC overall, driven by Mainland China, is the first we're recovering and is the best performing region. In our case, I have to say that now since we have a big market in Great Britain and which is back to business, of course, this helps in the European market as well. So Europe is doing fairly good. In the Americas, on the other side, we still experience some regional lockdowns, especially in the area of California, in some cases in New York. So in the Americas, we are still suffering. Regarding Main and China and the July performance, I can clearly confirm that our performance further accelerated in July. And regarding the cost savings, the question was how many were recurring and nonrecurring. What I can say is, overall, we said back in May that we want to save €150,000,000 overall in OpEx. We have already included €100,000,000 of those was included in Q2, and we expect €50,000,000 to come in the second half of the year. And the higher amount is actually related to short time work, which was done, turnover based trends. So that was the reason for this higher amount in Q2. But clearly, once the business now recovers, our clear focus is to save or to serve the curve, I would say, to accelerate our sales growth and at the same time, have a clear cost focus as well to make all the cost savings that we're having sustainable. This is the clear focus. And yes, and I think in the market overall, the Q2 was clearly our intention to secure cash, and I think that was our priority number 1. And I think that we delivered at the end with a free cash flow of €39,000,000 And all the measurements have come through, plus the additional credit facilities that we are having. And at the end of Q2, I can clearly say that we are operating out of a position of financial strength and that we clearly want to leverage this financial strength now in the upcoming quarters because there are always opportunities and chances in a crisis, and we will manage those opportunities and try to maximize our sales while still having a big focus on the cost part. Great. Thank you very much. Next question is coming from the line of Antoine Belge from HSBC. Please go ahead. Yes. Hi, it's Anton Belt at HSBC. Two questions. First of all, I think you made very interesting comment about the focus on casual tailoring, which I think is a good thing, but you're also facing probably quite a strong competition there. So what's your level of confidence of having a product in casual tailoring, which will be differentiating itself from the peers? And my second question relates to gross margin. I'm not asking for guidance for the second half, but more like a level of confidence that you've already taken enough inventory provisions for the second half margin to be derisked in a way? Or should we expect quite a significant gross margin decline in the second half due to more markdowns and maybe further depreciation? Thank you. Yes. Bonjour, Antoine. Thank So I start with the gross margin. Clearly, what we will be seeing in the second half of the year, I mean, of course, there are a lot of uncertainties still in the market. We don't know if there is a second wave. We are very much convinced if there are some lockdowns, there will be some more regional lockdowns. So it's very, very uncertain. But from a tendency point of view, we are convinced that with the inventory devaluation that we were taking at the end of Q2, we did sufficient reserve regarding our inventory position because we on top of this, we were cutting our fallwinter retail inflows. So we feel pretty much well balanced in terms of net sales chances and inventory risks for the second half of the year because back in March, we were still capable of managing the inventory inflow for the products of the second half of the year. So I would not expect a margin that is hit by inventory devaluation. On the other side, I think what we like I said in the beginning, I think there will be some a lot of competitors will do markdowns, and I think we cannot exclude ourselves from this kind of promotional environment. There will be some markdowns, but clearly, I think this markdown level will be somehow slightly elevated versus where the supplier year. And regarding casual tailoring, I think there are a lot of examples of the younger customers today that combine sportswear with a lot of affordable luxury items. It's wearing a jacket with a T shirt. It's wearing a kind of tracksuit with sneakers. So this combination, I think this is the modern interpretation of how you want to dress up in a very nice BOSS way. I think we are the trendsetter in this regard, and there are a lot of examples that will be coming in the fallwinter springsummer collection because we are clearly pushing towards this casualization trend, and we will interpret this in the BOSS play. Thank you. Maybe just a clarification. So within the depreciation charge you took at the end of Q2, was it all related to spring summer? Or was there already some depreciation of fallwinter? No, it was related to the springsummer collection. Next question is coming from the line of Elena Mariani from Morgan Stanley. Please go ahead. Hi, good afternoon. Two questions from me as well. The first one is on your wholesale outlook. So you probably have a little bit of visibility into the second half of the year. So could you help us understand how we should think about sales progression? And also, I think some of your peers have taken the chance easier to further rationalize given also that the business in this channel has been difficult for quite a while. So should we expect you to take a more a tougher approach versus some of your partners? And then my second question is going back to the further casualization of the business model. I was wondering how you plan to do it strategically and how you plan to balance the strong cost savings you've been achieving with further investments to give this push to your brand? And what are you going to do over the next 12 months given that your CEO your new CEO is going to join in June next year? So I was trying to understand how you plan strategically to develop the brand over the next few months and what are the investments you're going to put on the back of this? Thank you. Okay. Thank you very much. And then actually, I noted 3 questions, and I tried to answer all of them. So first of all, regarding wholesale outlook. So if it comes to the fallwinter collection, like we always said, we accepted back in April May. We accepted some cancellations because at that time, back in April, we were still capable of somehow responding to our suppliers, and we could cut the orders from the supplier point of view without any harm for the business. So we did this. This was between so we had to cut the orders by between 15% 20% of the fallwinter collection. And for the springsummer, we actually just started our sale of the springsummer collection. And this is clearly too early to call because the time period that's over is only 40%. So this is too early to call. Your second question refers to the network, and I think you're referring to the brick and mortar network. I'm always saying we have those 600 contracts that we are managing, those 430 freestanding stores and 170 outlets, we touch these 150 contracts every year. And I think with poor profitabilities coming in because of this COVID situation. I think we have to look at this now very closely what is the rebound. And of course, there will be some closures. But actually, I was already in the middle of the optimization of the full store network, and I would have I would rather have now a kind of more cautious view on the store network and have rigid necessities in terms of profitability levels of each store. But of course, this has to be closely monitored because on the other side, you get some very positive rent release as well in these times. So this has to be balanced out on a location by location basis because some locations must can have a strategic role and so on. So it's not you cannot somehow generalize this overall. To sum it up, so clearly, store optimization will move on like we did already in the last 18 months or since I'm there, and we will have a pretty rigid view on this. You were pointing out regarding the specialization and what are the strategic measurements that I'm taking, clearly, what I want to say is, I will be in charge for the next 10 months, and I will be there as a CFO afterwards. And clearly, I will not administer this time period. And clearly, we want to attack, and we want to have a strategic alignment together with our new Supervisory Board, which has just been elected. So by mid September or in September, we will have a clear strategic framework to ensure that we want to do the right things. And I think there will be a kind of strategic priorities to ensure that we are working on the right things, and this will last even after Daniel will join and clearly pave the way already back for growth. And I think there will be a lot of things that we have to do in terms of pushing the casualization of the brand, to emotionalize the brand as well, to have some investments on the brand, including enforcing our business units, BOSS menswear as well to ensure that we get back on the growth level again. Thank you. Just one small clarification. My question on the network, it was also on wholesale. So I was wondering whether you're happy with where you are in terms of your network of partners, particularly in the U. S. If I remember well, your business there is 50% retail, 50% wholesale. So are you happy with that? Or would you expect to maybe cut some number of partners over the coming months? Actually, the wholesale business in the U. S. Is 30% of the business if you go back to 2019. And it mainly consists of 4 to 5 major accounts. I think there are 1 or 2 accounts that might be converted to a concession model, and we are in talks with them in order to control the brand. And in the other doors, I have to say, we are clearly not over distributed. I'll just give you one example. With Macy's, there are 600 doors with Macy's, and we operate 8 of them in the concession business in the shop in shop and the biggest one. So I think it's an over interpretation that we are over distributed in the wholesale in the U. S. Market. And very often, I have to clarify this. Understood. Thank you very much. Next question is coming from the line of Melanie Flouquet from JPMorgan. Please go ahead. Yes, good afternoon. Thank you for taking my questions. The first one was I was trying to assess how much progress you're actually making in the casual wear. And I was wondering whether you could share with us what is the split of your inventory or your commitment to production, however you want to look at for fallwinter between casual and formal wear? And how that compares to the level last year? That would be my first question. The second question is on the rights of used assets impairments that you have taken will likely lead as you close to a benefit in your D and A and your amortization in the coming semesters. Should we do you encourage us in non cash, but do you encourage us to put that in our numbers? Or should we assume that these rights of your asset impairments was fairly cautious and could be reversed below the decline at some point? Thank you. Yes. Thank you very much, Melanie, for your question. So I would start with the second question. So what we did is we did a in the old times, you would have say an extraordinary depreciation for the right of use assets of €88,000,000 and of €33,000,000 in terms of the fixed assets in the stores. So this sums up to €121,000,000 So I mean, accounting wise, what you do is you have the depreciation now earlier. And of course, you have less depreciation less depreciation sorry, depreciation in the semesters or quarters to come. This is by nature the case. Whereas the good But your do you think that COVID led you to because we saw this at one of your other peers in terms of charges, pretty hefty charge of impairment, do you think this is a consequence of an accounting on COVID that can reverse fairly quickly when times resume to normal? Or do you think it's a lasting impact on your depreciation and benefit to your depreciation for the next 4 years, I suspect, or 5 years? I think this is very difficult to judge. I mean, what we had to do, Melanie, was usually we do those impairments in Q4. But because of the IFRS requirements, because of the ESMA, we were obliged to do the impairment testing now in Q2 because COVID-nineteen was perceived to be kind of triggering event. So in contrast to the prior years, we did the impairment, 1st of all, in Q2. Usually, we would do this on Q4 based on our budgets that we are having. So we would have done this before. So my second remark is clearly this right of use asset, of course, is the new normal and will put a kind of higher volatility in this kind of impairments. And even if the business might recover even faster, there might be even some reversal of impairments. You don't really know. So for the time being, what I know is we did these kind of, call it, extraordinary depreciations now at Q2 based on the best knowledge because we had to do it from accounting wise. We, of course, compared our practice with the peers, and they did the majority that's almost the same. And clearly, this would put less this will lead to a kind of decrease in depreciation in the next semesters. So if other things don't change, right? So but this right of use asset impairment clearly is a new phenomenon, which will increase the volatility of the result, right, overall because of the IFRS 16 changes. Yes. And then your first question was related to casualwear. Yes, there will be an ongoing shift. What I can tell you, especially in the U. S, we were pointing out in the last quarters that Stefan Born, our manager for the Northern Hub, is in the U. S. November last year. Of course, he has now a very difficult time. But what he did, for example, is that he was adjusting the assortment because, especially in the U. S, we are perceived to be a suit only company, a suit only company. So we adjusted this, and this was a shift between formalwear and sportswear at around 20 basis points. So pretty hefty shift in terms of assortment. That is now shown in the retail environment, just to give you an indication. In terms of the sixty-forty split that you provided to us earlier on cash flow versus 10? This is sorry, Melanie, this is the shift this is the split for the whole group, which is 40% formal, 50% sportswear, 10% shoes in us as well. In the United States, it was like it was even different. It was more like sixty-thirty-ten towards formalwear. So there will be a big shift with this regard. And of course, this will be underlined with marketing measurements as well. But finally, you're talking about fall winter, yes, To be precise, because he was capable of running this change already because he joined in November. So when he adjusted the buy for retail, he could adjust this kind of shift towards casualization in the U. S. And of course, it's an evolutionary development that will take place. But I think this shows us that we are convinced, especially in the U. S, we have to change the brand perception in this market. Perfect. Thank you. Next question is coming from the line of Catherine Parker from Jefferies. Please go ahead. Good afternoon and thank you for taking my questions. So my first question is on the order intake and if you could actually put a percentage on the reduction of the fallwinter collection that you have ordered? And then my second question is on marketing and whether you could give an update on your strategy going forward and what proportion of your marketing spend is on digital marketing? Thank you. Yes. Hello, Catherine. Good afternoon. So regarding your second question regarding marketing, 60% 60% of our marketing spending is in the digital marketing area already. And of course, with the growing online business, this will increase further on. And of course, this is the way especially to approach the younger customers. And regarding the order intake, you were referring to the wholesalers. What was this question about for fallwinter? Catherine? Actually, I meant your total order intake from your producers or supply? From the producers for the full winter. Yes. Yes, the inventory inflow. So overall, we cut it around, I would say, around ish 25% overall. That was the cut that we're doing. Thank you. That's helpful. Next question is coming from the line of Philip Frey from Warburg Research. Please go ahead. Hello, gentlemen. I've just some clarification questions. Actually, did I get you right that overall retail during June was down 35% to 40% and that this is basically based on around 80% of your stores opened on average. Could you confirm that or correct me there? And secondly, if I got it right, you had some €40,000,000 rental savings during Q2. Could you please elaborate on how much of this is temporary forgiveness during the acute phase of COVID? And how much is permanent reduction of rental rates? So referring to your first question, I think your clarification is right. So it's like this in retail minus 35% to 40% based on this 80% as an average. But clearly, at the end of the month, we were going to this 90 area, right? So take this. And clearly, we were improving further in July on the retail environment. And then regarding the rental expenses, yes, I've been there have been a lot of different things in terms of variable rents, savings. There have been savings with minimum rents that we achieved. There have been some deferrals as well. But it's very difficult to judge which are sustainable because we are still in the middle of discussing further rent reliefs for the time being. So every number, I would say, is wrong. Fair enough. It's very difficult to judge. But I guess it's clear that the overall rental level prices in the market are going down further, so time is in your favor in a way. That's true. And that's reason why I'm saying this. I mean, we are heavily working on this to get the rent down. Even with further opportunities that might come up, especially in Mainland Chinese market, there are a lot of opportunities or in other Asian markets. So we're going to take those and profit from these kind of rent decreases, right, for the future because it's now the time to react. I think the most important thing is we have to react fast and take fast decisions, right? And we try to exploit this kind of situation. Well, so all the best and well, keep fingers crossed. Thank you. Thank you. Next question is coming from the line of Volker Bosch from Baader Bank. Please go ahead. Hello, gentlemen. Volker Bosch Baader Bank. Thanks for all the provided answers. A lot of questions are answered. But coming to two questions finally. First on the concession model with Zalando, can you confirm, are you in the meanwhile fully distributed to all countries where Zalando is in with your full collections of both brands, BOSS as well as HUGO? Or what are the next steps or what is still to do in that regard? And the second question is for clarification, sales were down by 59% in the second quarter. How much was April, May June down year on year to see the improvement momentum would be helpful to calculate? Thanks. So regarding the concession business and the current status with Zalando, regarding the BOSS brand, we are operating in all markets besides Spain and besides Poland. And so Poland is a very relevant market. So since so this is still open. So once we have our own website in Poland, we're going to convert Zalando as well there. So but we converted in the first half of the year, we converted the Nordics and the U. K. In the meantime. So this is like 3 countries of the Nordics and U. K. And HUGO is still operating in the wholesale model. The full Hugo. Okay. And that still has been changed? Sorry to interrupt. We are in current negotiations with Zalando to convert HUGO as well. And then regarding the rate, I mean, we gave some indications in our outlook saying that in April, the net sales were down year on year minus 80%. I'm talking about retail. And then in June, it was minus 35% to minus 40%. And then you can somehow draw a line between the business. But this was just retail, right? This was just me. Yes. But this is more or less but this is more or less overall the same logic. Okay. Got the message. Perfect. Thanks very much. All the best. Thank you. Okay. Thanks, Volker. So thank you, everybody, for joining today's conference call. And this actually completes our call for today. And as always, if there's any further questions, please let me or the IR team know, and we're always here for you. And with that, thanks for your participation, and enjoy your summer holidays. Thank you and bye bye. Bye bye.