Earnings Call: Q1 2020

May 5, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the HUGO BOSS First Quarter Results 20 20. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Christian Stor, Head of Investor Relations. Please go ahead. Thank you, Maria, and good afternoon, ladies and gentlemen. Welcome to our Q1 2020 financial results presentation. Today's conference call will be hosted by Marc Langer, CEO of HUGO BOSS and Yves Muller, CFO. As always, let me remind you that during the Q and A session, we kindly ask you to limit your questions to a maximum of 2, so everybody gets a chance to ask his or her questions. Now let's get started, and over to you, Marc. Thank you, Christian, and good afternoon, ladies and gentlemen. Also from my side, a very warm welcome to all of you. In the next 20 minutes, Yves and I will guide you through our Q1 2020 operational and financial performance. We'll use a considerable part of this call to address the current situation in the context of the COVID-nineteen and elaborate in detail regarding our comprehensive measures to safely navigate HUGO BOSS through these exceptional times. Allow me to start, however, by also saying a few words about myself. As you are all aware, after 18 years with the company, I will leave the Managing Board of HUGO BOSS at the end of September. I'm grateful for almost 2 decades that I've been able to serve HUGO BOSS in various roles and for having had so many talented and passionate people around me who supported me during this journey. Yet today is not about saying goodbye. Our company, just like the apparel industry as a whole, is currently facing an unprecedented situation, a situation that none of us had witnessed before and a situation that requires the full attention and dedication of each and every person working for HUGO BOSS. I care deeply for this company, and I will continue to serve HUGO BOSS as best as I can in the months ahead. Together with my Board colleagues, I will ensure we take all steps necessary to steer HUGO BOSS through this crisis. Despite major challenges associated with the COVID-nineteen pandemic, we are fully aware of the social responsibility HUGO BOSS assumes in particular during the current situation. Prioritizing the health and well-being of our employees, customers and partners is and will remain our guiding principle for any decision we currently take. In this context, and already at an early stage, we set up a cross functional crisis team that closely monitors the development of the pandemic, thereby coordinating all measures to moderate the impact on our people. That includes enabling our corporate employees to work from home and implementing a variety of precautionary measures relating to distancing and hygiene rules for our global production, logistics and retail staff. In order to make a vital contribution to the well-being of the public, we have temporarily dedicated our manufacturing facility in Germany to the production of reusable face masks. In the meantime, almost 200,000 of these masks have been donated to public services and facilities. Likewise, we donated protective suits as well as face shields to medical facilities, both of which were produced in our facility in Izmir. In addition, over the course of the past several months, we have temporarily closed most of our retail stores, including shop in shops and outlets, in order to protect our customers and our retail staff, while at the same time complying with regulatory requirements. So let us take a closer look at the impact of these measures on our global store network. As of March 31, approximately 75% of our global retail store network was closed, with the remainder largely operating at reduced operating hours. While the vast majority of our store base in Asia Pacific has reopened towards the end of the quarter, Europe and Americas, by far the biggest regions, were almost entirely shut down following the implemented lockdown in mid March. Since then, the situation has barely changed. While Europe has seen the 1st store openings in Germany and Austria towards the end of April, So the situation that we are confronted with globally continues to put severe pressure on our brick and mortar business in most of our core markets. As we speak, more than 3 quarter of our global store base remains closed. For For HUGO BOSS, the current circumstances led to a significant decline in sales, profitability and cash flow. After a very promising successful start to the New Year, the global spread of the virus significantly impacted our business, first in Asia Pacific and with some delay also in Europe and the Americas. Consequently, group sales decreased 16% to €555,000,000 in the Q1. This corresponds to a currency adjusted decline of 17% compared to the prior year level. In Asia Pacific, sales for the quarter were down 31% adjusted. Following 3 weeks of strong double digit growth in the run up to Chinese New Year, the rapid spread of COVID-nineteen and the corresponding store closures put a strain on our business. This was particularly noticeable in the Chinese market, where comprehensive actions were taken at an early stage. As a consequence, Q1 sales in China were considerably weaker as compared to other markets in the region, such as Japan and Southeast Asia. However, since the reopening of our stores in Mainland China towards the end of March, we have been witnessing an encouraging and steady improvement in this important market. In April, sales in Mail and China were down only 15% to 20% as compared to the prior year level after being down 80% and more in February. We are confident that the positive trend we are currently seeing, whether that's customer demand, traffic or conversion, will continue in the coming weeks, enable us to return to growth in the foreseeable future. The gradual recovery in China is accompanied by consistently strong performance of our online business in that market, in particular during the month of April. This includes significant double digit sales growth recorded on important e com platforms such as Tmall and JD. We are also in the midst of strengthening our social commerce capabilities on WeChat and the likes in order to further accelerate online sales growth while at the same time driving brand momentum among the Chinese client here. Moving over to Europe, where the strong momentum performed the final quarter 2019 continued at the very beginning of the year. Many key markets such as the U. K, Spain and Italy recorded robust sales growth in January February, while others such as France already began suffering from a lower share of tourism, in particular from Asian countries. As the spread of the COVID-nineteen intensified also in Europe, we acted quickly by temporarily closing virtually all of our stores in point of sales at wholesale partners in mid March. This led to an overall decline in currency adjusted sales of 14% in the Q1. While retail sales saw a decrease of 10%, wholesale sales were down even 19%. The latter mainly reflects lower deliveries to wholesale partners in light of the ongoing uncertainties of COVID-nineteen, but was also driven by 2 conversion effects. Firstly, although on a technical note, the successful expansion of our online concession model over the course of 2019 keeps burning our wholesale performance in the short term. This is particularly relevant for our European business following the successful conversion of our BOSS business on Zalando from wholesale to retail, which largely took place during the Q3 of 2019. Secondly, starting on January 1, 2020, we have fully consolidated our group entity in the United Arab Emirates. Together with a strong local partner, we are now successfully running 5 BOSS stores and 1 HUGO store in the market. The generated sales have previously been accounted for as wholesale revenue and are now fully included in retail. Looking ahead, we are mindful that the economic environment in Europe will most likely remain challenging in the short term. While we have taken the first steps to get back some of our freestanding stores in Germany and Austria on track, we have to acknowledge that it will be a long way back to normal operations. With only a few days training again, it's also too early to provide you with the first indication on current trends in these two markets. In the Americas, the situation in the Q1 was quite similar to that in Europe. Both January February played out very well, particularly in our important U. S. Market, where comp store sales reaccelerated and posted very solid growth after having stabilized in the previous two quarters. Against the backdrop of the pandemic, however, momentum in the U. S. And Canada deteriorated sharply in March. This resulted in a 17% currency adjusted revenue decline for the Americas in the Q1, with retail and wholesale performing broadly in line. In contrast, our business in Latin America was affected by the pandemic only later. We were hence able to record sales growth for these markets in Q1, reflecting robust momentum in both Brazil and Mexico. At the end of March, however, retail stores and shop in shops in these two markets have been closed in order to protect our customers and employees. While the vast majority of our stores, shop in shops and outlets have been affected by temporary closures in the Q1, our own online business continued a double digit growth trajectory. With an encouraging currency adjusted sales increase of 39%, the Q1 of 2020 marked the 10th consecutive quarter of strong double digit growth for our e com business. This not only reflects the growing importance of our own website, hugoboss.com, but it's also proved positive for the success of our online concession business implemented with many of our core partners. As a result of its strong outperformance versus physical retail, the share of our own online business increased from 7% in the prior year period to 11% of own retail revenues in the Q1 of 2020. We are absolutely confident that the strong momentum of our e com business will also continue in the Q2. In this context, we are encouraged by the further acceleration in online sales growth in the month of April, with revenues more than doubling as compared to the prior year period. In total, retail sales were down 17% currency adjusted in the 1st quarter. On a like for like basis, currency adjusted revenues decreased 20%. The non like for like part of our retail network was somewhat more resilient, benefiting from the aforementioned expansion of our online concession business in 2019 as well as around 50 store refurbishments completed in the prior year. Wholesale revenues declined 18% in the Q1, reflecting lower deliveries to wholesale partners due to order cancellation as well as softer replenishment business towards the end of the quarter. Besides this, the conversion effect that I mentioned earlier also weighed on our wholesale performance in the 1st 3 months. Ladies and gentlemen, that concludes my operational review of the Q1 of 2020. Before I hand over to Yves to guide you through the most important P and L and balance sheet items, allow me to conclude very briefly. The situation we are confronted with is by far the biggest challenge of our industry has faced in recent history, in particular as it did not allow us nor anybody else to fully prepare for it. We, as HUGO BOSS, were going into the year with high confidence. We were committed to further executing our strategic initiatives and driving the strong momentum from the final quarter 2019. Now the priorities have changed, and our focus will be on protecting the long term well-being of our company and ensuring that we rebound even stronger once the crisis is over. I'm fully convinced that HUGO BOSS will successfully overcome these challenging times. Thanks to the great passion and dedication of our more than 14,000 employees worldwide, the strength of our brands as well as our group's solid balance sheet, we are well equipped to safely navigate HUGO BOSS through this pandemic. And we are in the middle of implementing numerous measures that would help us safeguard the financial flexibility and stability of HUGO BOSS. Regarding the latter, Yves will provide you more color. Yves, over to you. Yes. Thank you, Marc, and good afternoon, ladies and gentlemen. As Marc has already alluded to, the challenges associated with the pandemic inevitably weighed on our financial performance in the Q1. At 62.9%, the gross margin was down 90 basis points versus the prior year level. Against the backdrop of the pandemic, increased markdown activity weighed on the gross margin development in Q1. All other effects, including channel mix, currencies and inventory valuation, only had a minor impact in the Q1. Speaking of inventory valuation, let me be very explicit when I say that we expect a meaningful impact of the ongoing store closures on our inventory position in the coming quarter. Consequently, the gross margin development in the second quarter will most likely be burdened by a significant negative inventory valuation effect. Moving over to operating expenses, which saw 1% decline in the Q1. Within operating expenses, selling and distribution expenses developed broadly stable in the 1st 3 months of the year. While we recorded some first cost savings from the various measures we implemented to protect our cash flow, something I will talk about in detail in just a few minutes, we also had to post valuation allowances for specific wholesale accounts in the magnitude of a high single digit €1,000,000 amount. Besides this, also the full consolidation of our subsidiary in the Middle East that Marc mentioned earlier led to an inclusion of costs in the mid single digit €1,000,000 range. These costs are associated with our 6 stores in Dubai and Abu Dhabi. Last but not least, negative currency effects impacted selling and distribution expenses by a low single digit €1,000,000 amount. On the other hand, we were able to bring our administration expenses down 6% in the Q1, mainly reflecting our continued strict cost management approach. In addition, lower personal expenses also contributed to the decline in admin expenses. To complete the picture on the P and L, both EBIT and net income came in below the prior year level, mainly reflecting the double digit sales decline, which unsurprisingly weighed on the bottom line development. Now let's move over to the key balance sheet and cash flow items. Trade net working capital increased 1% year on year, currency adjusted. Lower trade net receivables contributed positively as a result of the wholesale performance in the 1st 3 months. Our inventory position, however, was up 6% currency adjusted, reflecting the aforementioned store closures. During the course of the Q1, we adjusted our CapEx budget for the full year to the current environment. This in turn meant suspending the majority of store renovations and new openings until further notice. As a consequence, capital expenditure in the Q1 was 41% below the prior year level at €18,000,000 A major project that we finalized just before the store closures in EMEA and in America took place was the relocation of our BOSS flagship store in New York's SoHo district, which is now shining in a new splendor at an even better closer location close by. Finally, free cash flow in the Q1 came in at minus €86,000,000 as the earnings decline was only partly compensated for by the first successes of the various measures initiated to protect our free cash flow. Ladies and gentlemen, the current global health crisis and its financial implications represent an unprecedented situation for the industry as a whole as well as for HUGO BOSS. However, thanks to our healthy balance sheet and the comprehensive measures we have initiated to protect our cash flow, I'm fully convinced that we were able that we are well equipped to navigate this exceptional situation. So let's take a closer look at the various initiatives aimed at securing our liquidity and hence preserving the viability of our company. I will focus on the 4 most important ones as they together will lead to an additional protection of free cash flow and a magnitude of around 600 €1,000,000 Starting with operating expenses. On top of our already consistent approach to strictly manage overhead costs, we have meanwhile mobilized fast and determined all levers that will enable us to realize additional savings, in particular in the areas of selling and distribution. In total, we are targeting incremental cost savings of at least €150,000,000 in fiscal year 2020 compared to our initial budget. This includes payroll savings via implementing short time work in Germany as well as other countries, reducing working hours in retail, postponing all planned salary increases for 2020 as well as putting a global hiring freeze into immediate effect. Our goal is to maintain our workforce during this challenging time, while at the same time staying as flexible as possible. We, as the managing board, will also participate in the measures to secure cash flow and consequently, we will waive 40% of our basic remuneration for the month of April May 2020. Besides personal expenses, our initiatives also include savings resulting from successful negotiations with our landlords as well as individual agreements to temporarily reduce rental expenses for several stores over the next month. We have also reviewed our marketing budget and canceled or postponed various marketing events and campaigns. Saving in this regard relate to cutting back on media and print advertising, visual merchandising as well as physical events. At the same time, we will continue to invest in digital marketing with a strong focus com platforms and social media in order to keep driving brand momentum for BOSS and HUGO. Last but not least, we are also eliminating all further nonbusiness credit operating expenses, including reducing external third party services, reducing travel expenses and halting nonessential system implementations. On top of the aforementioned OpEx savings, we are cutting our CapEx budget for the current year by around onethree as compared to our initial plan of around €150,000,000 This mainly includes postponing planned store openings and renovations when not perceived to be business critical. In addition, we have decided to hold all non essential IT investments. To limit the increase of our trade now working capital position in the quarters to come, we will reduce the inventory inflow by at least €200,000,000 in fiscal year 2020. In particular, the upcoming fallwinter collection will see a significant reduction in the overall order volume. That includes agreeing with our key suppliers on significantly reducing orders as well as adjusting our own production in Izmir and Turkey to lower demand in the short term. In addition to this, we are taking a very conservative approach when it comes to the replenishment business for the current springsummer collection, while at the same time planning to carry over a high share of styles between the two seasons. Last but not least, as already announced last month, we as the Managing Board together with the Supervisory Board decided to propose to the Aneo Shareholders' Meeting on May 27, the suspension of the dividend payment for fiscal 2018, except for the legal minimum dividend of €0.04 per share. The retention of net profit will further strengthen our financial flexibility in the 2020 fiscal year. I'm absolutely convinced that the execution of all these measures will enable us to predict our otherwise very balance sheet and provide us with the right amount of financial flexibility. Securing sufficient liquidity is and will remain our top priority in the short term. Now before I come to an end, ladies and gentlemen, allow me to say a few words on our expectations for the full year and the Q2 in particular. As you would expect, the ongoing temporary store closures will continue to weigh on our top and bottom line performance in the short term. At the same time, the level of uncertainty remains elevated as we speak as nobody ultimately knows today how long the situation will last and how quickly we will be able to return to growth. This in turn means that it's still impossible to quantify the resulting negative effect for the 2020 fiscal year at this stage. Nevertheless, we have to be prepared for a challenging Q2. This is particularly true with regard to our business in Europe and in the Americas, which under normal circumstances represents a good 85% of group revenues and which remains heavily affected by the ongoing store closures. Consequently, we expect both top and bottom line declines in the second quarter to be more severe than those recorded in the first quarter, currency adjusted sales projected to be down by at least 50% in Q2. The latter will, of course, heavily depend on how long the lockdown will last and how quickly the brick and mortar business will be able to return to a more normalized trading. The expected top line development, together with a more pronounced impact from inventory write downs that I mentioned to you earlier, will significantly weigh on our operating result, which at this stage is estimated to be negative by more than €100,000,000 in the second quarter. Despite the current situation and a rather difficult second quarter ahead, we are confident that from the Q3 on, the retail environment will gradually improve. This should also positively impact the group sales and earnings development in the second half of the year. Until then, the key priorities we are focused on and execution against remains clear: 1, working with highest discipline on our measures to secure the financial stability of HUGO BOSS, while at the same time driving and exploring our huge opportunities within our growth drivers online in China. And with this, ladies and gentlemen, Marc and I are now happy to take your questions. And the first question is coming from the line of Jaina Mistry from Deutsche Bank. Please go ahead. Your line is open. Hi. Can you hear me? Perfectly. Hi, Jenna. Hi. Thank you for taking my questions. I'll stick to 2. Firstly, on inventories. Based on your commentary, by when do you think the inventory position will be clean? And what proportion of your inventories today are evergreen versus seasonal? My second question is on cost savings. What magnitude of cost savings you see in Q1 and of the €150,000,000 that you've guided to, what will be the phasing over the year? If you want to go with OpEx and I take the one in inventory. Yes, clearly, like we said, we expect savings in the OpEx side to be €150,000,000 We had only some savings in Q1 because as you might know, the lockdown started in the majority of our business in the mid of March. And so the €150,000,000 will be, well, more or less spread over the next quarters, I think with a certain effect in Q2 and Q3. On the inventory side, we do about 20% on our business with evergreen articles. So that have no specific connection to the springsummer of our winter collection. Even so this transitional share of our collection has grown. So we are quite confident that already part of our springsummer collection will now be used to merchandise our stores as we restart our business. As Yves already explained in detail, we have seen already our ability to slow down the inflow of fresh merchandise in the Q1. So despite the lockdown and depressed sales levels in retail and wholesale due to the lockdown, we have seen a very modest increase in inventory over the previous year. And we have clearly adjusted now our production volumes both on the retail and wholesale side for fallwinter and beyond. We will use this inventory that we are not able to sell full price now as inventory for our factory outlet business for the first half year of twenty twenty one. So we have adjusted both our production volumes for full price business as off price business. And I think we already gave you the indication that we have already identified and implemented measures to improve our inventory situation by around more than €200,000,000 until the end of 2020, which would give us a relative size of the inventory to the business size comparable to the previous year. So at this point in time, we expect a normalization on the inventory in terms of age structure as we go into 2021, but we expect a healthy relationship between inventory and business size already in the second half of twenty twenty. Okay. Thank you very much. Thanks, Janne. The next question is coming from the line of Jurgen Kohl from Kepler Cheuvreux. Please go ahead. Yes. Thank you very much. Also on the inventory side, maybe one quick one. And what exactly are you writing off or are you indicating to us that you may want to or you want to write off in Q2? Spring summer, but is that also fall winter and the upcoming fall winter collection? And maybe some more indications on how much you think you have to reduce the price of the merchandise when you ship it to the factory outlets? And secondly, I noticed Hugo had even in the Q1, a very strong casualwear business, which was even in the Q2 up double digit. And I was wondering if you could maybe give us an indication what kind of products were selling so well here and what the share of the leisure or the casual wear share is right now at HUGO? Thank you. Yes. So to be very clear, we have taken already quite significant adjustment measures on the fallwinter merchandise. So this is the first merchandise to arrive, Jurgen. So there's no write downs on the fallwinter. However, what we flagged out is that we do expect due to the low volumes movement on the springsummer merchandise due to the lockdown that our SAP system will indicate write downs both on springsummer 2019 merchandise we were not able to sell at the expected speed in our off price business and semester for the spring summer 2020 in our full price business. We do expect that our SAP valuation runs will indicate and ask or lead to write downs on the inventory on the spring merchandise. Because on the spring merchandise, as you probably know, we had no chance to react because as we were hit by the full magnitude of the slowdown in the end of March. So the what we indicated as we expect Q2 to be affected by inventory write down, this relates to the spring summer 2019 collections. You're right to highlight one of the encouraging trends that we continue to see as HUGO maintains its momentum, especially in the casual side of the business. You remember that one of the elements of our midterm growth plan clearly delivered. And we have seen also in the Zovo depressed Q1 a double digit growth in casual, which has brought the casualwear business at HUGO now almost on parry with the former business due to the category remigration. The business part is overly affected by HUGO, but we have seen a 12% growth in HUGO casualwear. So we are clearly in the circumstances of the corona pandemic, we have seen still a strong underlying demand for the Hugo Contemporary segment. Very good. Thank you very much and best of luck. Thank you. Next question is coming from the line of Thomas Chobat from Citi. Please go ahead. Good afternoon and thank you for taking my questions. Two questions, please. The first one on your online business, Are you capable of coping with the triple digit growth in April for another couple of quarters or more from a logistics standpoint. How do you ensure you won't miss revenue opportunities as well as maintain a high level of customer service? And secondly, maybe for Marc, I know there's no crystal ball. You've said that for many years in this industry. Can you give us a bit of a kind of demand recovery scenario update in Q3 and Q4? It seems you want to be quite positive on Q3 and maybe the beginning of full winter. If H2 was worse than expected, what level of incremental cost savings could you implement? I think you mentioned in an interview this morning potential headcount reduction. And just a follow-up on question earlier and the casual wear of HUGO. When do you think you could translate that very brand specific momentum into BOSS? We're still seeing BOSS casual wear not performing as perhaps it should be even in this environment. Yes. Thanks, Thomas. Be cautious, we highlighted above 100% doubling business for the month of April, but this is not a full year indication to that. But your question was not whether we forecast doubling for the remainder of the year, but whether we are capable to deal with that. Our ability to serve customers with our multichannel warehouse setup has clearly proven itself to be beneficial and a strategic asset for the group in this time of lockdown. We are not depending on any third party in fulfilling these online orders. We don't have to fight for getting our right place in queuing systems. It's all run by Hugo Bosses 1 inventory pool. So we have been very swiftly able to shift inventory that we initially bought and allocated to brick and mortar to bring this inventory to the online side of our business. So under the assumption, we would see a high double digit growth or even triple digit growth in ecom. Our logistical capabilities will be no limiting factors to fill these demands. We also monitor very carefully service levels in terms of fulfillment. As you know, a lot of our business now comes also via concession third party platform. Zalando is working very closely with us to ensure and monitoring our service levels relative to the industry. And I can show you that HUGO BOSS stands out in terms of service quality relative also on these multi brand platforms, which is also proof on the sophistication and capabilities of our e a continuous release on the lockdown in cure markets. We have seen already first indication in Europe. I think you're well aware on some of the trends we also see on the other side of the Atlantic happening in the U. S. And I think Yves also spent some details on that we are quite encouraged by the trends we have seen in China. Also April latest trading days was even better than what we have seen in at the beginning of the quarter. So I think there's a clear sign that we are on a recovery path as stores began to reopen. But since the range of potential outcome for the Q3 as we on the one hand expect a gradual improvement, however, there's a wide range of potential outcome, it makes it difficult for us to predict already or to give you a full year guidance. So I would leave it at this point in time with that we do expect an improvement in the second half of the year. We expect Q2 to be at a low point on the performance, but we can't provide you with more color on the second year and the full year development. I would spin your question on BOSS SPORTS where HUGO SPORTS were positive slightly more positively, speaking on behalf of HUGO BOSS, of course. So we do see over proportional growth also on the BOSS Sportswear side. And also the two brand strategy has clearly shown that the consolidation of our Athleteser casual and smart casual offering has driven one of the key elements driving better sales density and performance in our stores. And also the feedback that we provided you in our previous quarters that BOSS on the wholesale side has started to gain traction. We mentioned already the development in the U. S. Where we stabilized and we have seen good momentum in the 1st 2 months of 2020 under the new leadership of Stefan growth. So in terms of collection, in terms of merchandising with the new setup, I'm absolutely confident that once we have this crisis behind us, Bospor will be an important growth driver for us in core markets, be it in Europe, but also in our 2 non European markets be it the Americas and also on in Asia. Thank you, Marc. And wishing you very well in the coming months and the future. Thank you, Thomas. Next question is coming from the line of Antoine Bert from HSBC. Please go ahead. Yes. Hi, good afternoon. It's Antoine Belge at HSBC. Two questions. Actually, my first question for Marc is based actually has 2 parts. So first of all, was there any difference in views in terms of the strategy at Hugo Boss for you to lead the company? And also can you provide an update about the search for a new CEO, what type of profile and what could be the time frame? My second question is back to this guidance for Q2 of an EBIT loss of at least €100,000,000 So what would be the gross margin evolution in that on that assumption? And also how much how many basis points will represent the inventory valuation effect that you already flagged? And by the way, I mean, you've seen that other companies, if I look at Adidas, for instance, they took inventory already in Q1. So what's the reason for delaying that to Q2? Well, let me start with the first one and then Yves will kick in on the second. So as always, I ask for your understanding that any details or reason why on my departure end of September is something that we will not discuss in public. But it's important on this one, I'm very aligned with the Supervisory Board and also with the Chairman that was not based on any disagreement on the strategy of the group, which we as Managing Board and also Supervisory Board fully endorses. I'm also unfortunately not the right person to ask on the status on the profile of the new CEO. That's fully the obligation on the Supervisory Board. So this is something that neither Yves or I can give you any further color to it. Of course, I will be in my current role until the end of September. I agreed to serve as an advisory role until the end of 2020. But I'm also absolutely confident that with the current Managing Board, the company is in very good hands in these clearly difficult times. If you want to give a bit more detail on the gross margin topic? Yes. Antoine, so regarding your second question, regarding the guidance for Q2, clearly, we expect an EBIT loss that will be exceeding €100,000,000 negative. But for the time being, we cannot because of the high level of uncertainty. We are really not able to provide with any guidance regarding the gross margin because any factor there are so uncertain for the time being, it will be very difficult. And relating to your question 2b, I would be saying regarding inventory valuation. Since you all know, I mean, you have, of course, your valuation routines at end of Q1 and be aware that the majority of lockdown, especially of 85% of our business in Europe and in the United States just started in the middle of March. So the aging structure and the coverages, these are the 2 main determined factors of the inventory valuations were actually in a fairly good position at the end of Q1. But what we expect is that due to the closures we have experienced in April and our expectation for the remaining Q2, we expect that the inventory valuation will hurt the gross margin in the second half of in the second quarter of the year. The next question is coming from the line of Thierry Cotza from Societe Generale. Please go ahead. Yes, good afternoon and thank you for taking my questions. First, coming back to the 50% minimum sales drop you expect in Q2. Can you give us some granularity on your thinking, whether you think that there should be a difference in trends between wholesale and retail and whether you think Europe and U. S. Should be as in Q1 pretty much remained or not? And secondly, on online, if I'm not wrong, the growth was a little slower in Q1 and in Q4. I was wondering if there was any less visible space impact last quarter versus the previous quarter. Let me start with the online question. I think to give you a bit more color to it, also online was not completely immune to the I would even call it shocks as the corona virus became a global pandemic. So there was clearly a period starting busy mid end of February until early February, where on the top of consumers' minds as they search the web was not necessarily apparel, but sanitizers and toilet papers, at least in some markets. So this has changed. It has strongly changed. This has changed already with good growth numbers in the second half of March. And as I said, we are very pleased with the momentum we have seen in April. So we do believe that customers have adopted to that. There continues to be very there's a high interest in our brands. So our CIM activation continues to work, maybe not to the full level as it's not able to drive people to our stores. But we are happy with the traffic it generates at our site. And as I already said, also our concession partners, clearly the biggest one Zalando, where we have taken our control for the BOSS side of our business. I assume we're happy with the underlying demand for our collections, coming back to the discussion we had on HUGO and BOSS sportswear and the results that we generate. So the 39% online growth in the Q1 was not an even number. We had a very, very strong start, then the base business slowed down significantly to beginning. And we take this momentum now, clearly we would like to work with that as long and this leads over to the question where Yves will give you a bit more detail. On the drop, we do expect in the Q2, which is predominantly driven by the vast majority, 85% of our business, which has now been closed for already 6 weeks into the quarter and we see only a very slow gradual reopening strategy. But Yves, please, if you provide a bit more detail to Thierry. Yes. Thierry, as you know, like especially in Europe and in the Americas, these two together are like 85% of our business. And actually, we now expect that the lockdown will be gradually released in some of those countries. This will take a while. And actually, from our expectation of channels, it will be evenly somehow be divided between retail and wholesale as both channels are now starting to trade in the respective countries. And B, of course, as you know, is almost the wholesale business and APAC is almost neglectable. But still keep in mind that even in the Asian region, there are some countries like Japan, for example, and Singapore it's more likely that there will be no trading in May because of governmental regulations. So we will see a gradual pickup there in earliest in June if we talk about, for example, countries like Japan and Singapore. Okay, great. Well, thank you and wishing the best tomorrow for the future. Thank you. Next question is coming from the line of Catherine Parker from Jefferies. Please go ahead. Good afternoon. Can you hear me okay? We do hear you loud and clear. Great. And so my first question is on the store performance in China. So obviously, you've given the April figure, but I wondered if you tell us what the exit rate for the month was and if there are any trends in cities or segments of consumers that are outperforming and perhaps whether you expect to turn positive in May or June? And then my second question is on wholesale, whether you would consider buying back any unsold stock from your wholesale partners to prevent them from discounting it? And how much control you actually have on the timing and depth of discounting in your wholesale business? Yes. Thank you very much, Catherine, on both question. As we said, we have seen from the low point as China was hit first, basically the same as we now see in Europe, a complete lockdown, more than 80% down. We've seen quite a steady improvement. And I think if you look at the full month base, we have seen our business at the end of the quarter already to cover to business that has already recouped 80% to 85% to the pre corona level. We have seen in the recent weeks, but we are too it's too early to tell whether this is prediction for the first full Q2. We have seen further encouraging signs. But we will not give you a full quarter guidance for the China's markets in particular because we think the data set is still too well uneven and not gives us a full trend. And also keep in mind that 2 important subsegments of the Chinese markets, Hong Kong and Macau, continue to be severely affected. So if you take just a certain regional part of China, we might be even right or you're right to assume that we might see already for the full quarter a flat or even positive development to that, but we are still cautious on the outlook of total of China for the Q2. So we would ask for your patience. We will give you more color to it as we have the full second quarter results whether we see or when we do see a return to growth for the Chinese markets. But it's absolutely clear also for us that China will be clearly the region and the markets where we do expect return to growth the first for HUGO BOSS. As you can imagine, for most of our wholesale partners, we are the number 1 menswear apparel partners. So we have spent a lot of time now with them to weather the crisis. The part that we have adjusted the first was clearly that to adjust their buying budgets for fallwinter, because also to the improvement we have been on the operational side of our business, we were able to postpone or cancel some of the production orders, which were not fully placed at our production sites, be it in house or third party, which takes away inventory pressure both from our balance sheet, but also from our wholesale partners, which gave a mandatory preorder in January, February to us. We are also evaluating very carefully and on a case by case base how we deal with trade receivables, we try to spread the challenges that we all face in an even way. Some of these wholesale partners are even our landlords on other side because we're working with them sometimes on a hybrid deal that part of our business is wholesale with them. Otherwise, we are also there are landlords on the concession side. So we try to find mutual acceptable ways to weather this difficult situation with us. But there's one thing that we are not going to be offering and that's the return of inventory. That's it was a decision from our partners to buy inventories at the current levels. It's a situation that we clearly have to deal with in excess of springsummer inventory situation ourselves. So we do not expect to have any inventory returns from our wholesale partners. Okay. Thank you. Thank you, Catherine. Next question is coming from the line of Elena Mariani from Morgan Stanley. Please go ahead. Hi, good afternoon. A couple of questions for me as well. The first one, going back to China, I would imagine that you're not benefiting massively from a repatriation of purchases, but still to a certain extent you are. So maybe can you remind us what's historically been the percentage of sales to the Chinese cluster that was happening outside of China? And maybe if you have any view on how the cluster has been developing recently as opposed to the specific sales within Mainland China? And then you are kind enough to talk about very recent trends. Have you seen anything interesting in Germany in the very recent weeks? I'm asking because there was another brand today that indicated very encouraging even better trends than in China. So maybe if you have some observations, it would be nice to know. And then final question is about all the measures that you have put in place to protect your free cash flow. I was wondering whether you think this would be enough to protect your liquidity situation in case of a worst case scenario. So in other words, if the situation does not improve in the second half of the year as quickly as you expect, do you think that what you've done is enough? Or would you need to do and put together incremental measures to protect your liquidity and balance sheet? Thank you. Thanks, Elena. Let me take the first two questions. So we expect that we do about 10% to 15% on our revenues with Chinese consumers clearly at home, but also as I travel the world and shop with our bus stores in Paris, London or in the Americas. As they are also now restricted to travel, we expect that they also are part of our recovering volume or momentum that we see now in China. So as you can imagine, it's hard to predict whether the transaction we are now have with these customers is something that in normal circumstances might have happened in Korea, Japan or in Europe. But based on the feedback that we also get from our Chinese colleagues, we do believe that part of the recovery path that we now see in China is due to the fact that Chinese consumers are being forced to shop at home with also for the foreseeable future is very unlikely of these tourism to return to shopping habits outside of China, which might have other repercussion on our global business setup. In Germany, I think we already gave you all the information we have at this point in time. We are quite happy from an operational perspective how the start up of operation has been. I think we are well prepared in terms of processes, new hygiene standards, staff training to serve our customers under these circumstances. Our observation is that traffic to the inner cities, to the shopping malls where we do operate in Germany. And keep in mind, it's I think it's just a handful of stores that we have started to operate. So no factory outlets. It's all based on the sample of the full price stores that we operate. We have clearly seen the impact of a very reduced number of visitors to the inner cities also coming to our stores. We have seen a steady improvement, at roughly at the rate that we expected in Austria even a bit more than we initially thought, but it's not a more rapid return to more normalized levels like we have seen in China. Actually, from our perspective, recovery in China is week on week stronger than the recovery we have seen so far in Central Europe. If you want to talk about the stress test impact on cash flow? Yes. And then what we are I think it's 1st of all, I think it's important to know what is our starting point. And I think if you look at our last balance sheet of the annual financial statement, we had net debt of €88,000,000 So actually, we are starting with a very solid balance sheet. And somehow, we as managing Board were somehow very often criticized for such an unleveraged balance sheet. At least now we know what is this good for. And I think it's good to have enough time to breathe now. And I think it's very important, point number 1, and always to prepare for the uncertainties. Secondly, I think we did all the cash measurements, like the €600,000,000 that I'm alluding to. We did a cash flow forecast and clearly, we did this on a kind of monthly basis. And still, if you draw this down on a monthly basis, even the worst case would be covered in terms of our liquidity position. So I'm very confident that we do everything to secure the liquidity. But I think it's always good to be prepared for more uncertainties. And of course, we are preparing this as well. Thank you. Very helpful. Sorry, just one thing. I've missed what you said in terms of percentage of sales to the Chinese happening abroad historically. Did you say 10% to 15%? Yes. Okay. Thank you. Thanks very much. Have a great afternoon. Thanks, Elena. And I think we have one more question. Is that correct? Yes, sir. The last question is coming from the line of Melanie Flauquet from JPMorgan. Please go ahead. Yes, good afternoon. Thank you for taking my question. The first one would be I'm bouncing back on the comment you made about the Chinese spending more at home. Clearly, you had less exposure to travelers, so there is less repatriation impact. But also, I suspect this raises another question mark that you're alluding to, which is whether you should accelerate your expansion because you are still relatively small with the Chinese consumer compared to other premium brands and other luxury brands. So could we see a reallocation of your store plans in the coming 2 years with more concentration on China and less, for instance, in Europe or in other adjacent countries. Could that be a consequence of this crisis? My number 2 question is on e commerce. Would you be so kind to maybe share with us what are your teachings of the e commerce performance? Are you seeing are you noting any big product doing particularly well? I imagine casual is doing well. What are you seeing by price points? Can you share anything on what is going on in e commerce to sort of best part of the business today? And my last question, sorry, is on allowances for wholesale accounts that you referred to in quarter 1 of high single digit million. Is this a one off, a big impact that you took straight away? Was it being linked to some U. S. Department stores difficulties? Or should we expect some of these charges to continue in the coming quarters and this was solely regarding Q1? Thank you. Thanks, Melanie. And clearly, China, as you know, has been a key pillar of our growth strategy prior to corona, and it has proven itself to be the absolutely focal point of the first series of crisis. So in terms of CapEx adjustments, the country least affected because from our perspective is least penetrated and offering the best financial terms and also in terms of growth is China. And during our approval processes over the last couple of weeks, I can tell you it was the vast majority of projects, be it renovation, relocation or new stores was the Chinese market. So we you're absolutely right in your assessment that we will do and fund all business endeavors now to enlarge or to grow our also physical retail network in China. And I was just visiting China a couple of weeks prior to the shutdown, meeting also some landlords. And especially in the menswear apparel segment, the feedback I received relative to our peers was extremely strong, and we were able to secure bigger and better located locations relative to other menswear players. So this is one element we pursue. What we also have seen that the Chinese market is also quite innovative when it comes to omni channel services. So during the period of lock down, we have worked with our sales associates to use WeChat also to stay in contact with our customers to introduce them to new offering, to find a hybrid, I would say, even personalized service where we use our e com platforms together with our physical distribution network to connect during the times of lockdown to our consumers. And we have decided now with our Chinese management also to scale this business now to serve customers in these times where physical traveling is restricted even more. So just to clarify the earlier question from Elena, when we talked about 10% to 15%, that's a total business that we believe we do with Chinese consumers combining our business in Greater China and outside of Europe. And we you're absolutely right. We think this is a number we can grow significantly in the years to come with physical expansion, but also the growth on the e com platform. Just another anecdotal evidence is that both Tmall and JD, I think I just briefly mentioned that in my speech, we're extremely happy with the growth that BOSS has demonstrated over the last couple of weeks. Both platforms also benefited in China from development or the impact from the coronavirus. And the BOSS brand, in particular, moved up quite significantly in the relevance as a leading men's wear brand also when it comes to the Wenceswear apparel platform. On helping on ecom was Well, we knew already in the past that the baskets look differently in the ecom business relative to brick and mortar? And the short answer is this has not changed fundamentally after the coronavirus. So there are certain product categories that are easier to purchase online than to buy in stores. So the suit that you wear for the most important interview, if you do your interview at JPMorgan, it's probably something you buy in the store. The dress that you buy for the most important date that you have meeting your parents in law is probably the one you still would like to try on in our boutique on Regent Street. But there is clearly now a push and hopefully we have seen our Centimeters mailing on comfort loungewear that resonated very strongly with consumers. So clearly, we took tactical measures in our CIM communication, the product pushes that we had on our e com side to help people to feel comfortably, but also classically in a classic way dressed as they spend more time in front of the Skype and Zoom monitors than with their colleagues in the office. But the short answer is that we have not seen a fundamental change in consumer demands in the crisis. And I think the third question was on Was on the allowances. Like we said, we had an impact in our P and L of a high single digit €1,000,000 amount. And the question was whether there are some individual wholesale accounts. Overall, as you might know, there are 4 of our customers that have filed like Chapter 11. These are Lourdes and Taylor, Niemann and Markus, Galla Rykauf of Castadt and Abdras and Kuper in Germany. So all these have exposure, which is less than €2,000,000 which we have somehow booked in allowance. And the remaining part is a kind of reserve we especially have as a prudent business man that we booked because we are doing a lot of sizable business with international markets. So this is the kind of reserve that we booked into Q1 based on our own expectation estimates. So this is we should treat this as a one off, right? It's not a repeat that we'll see every quarter. You took a big lump for the impact of the year? Yes. But of course, you never know what happens on the wholesale because as you know, right now, the whole industry is affected. But yes, this is a one off as a kind of bad debt allowance, yes. Okay. Perfect. Thank you. And Marc, thank you very much for the last 2 decades. Thank you. Thank you. Thanks, Melanie, and thank you, ladies and gentlemen. I guess that completes our conference call for today. If there's any question that was not answered, then please, as always, feel free to contact any member of the Investor Relations team. And with that, I would like to thank you for your participation. Wishing you a very good day. Stay healthy and bye bye.