Earnings Call: Q4 2019

Mar 5, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the HUGO BOSS Full Year Results 2019 Call. At this time, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions by pressing I must also advise you that this conference is being recorded today, Thursday, the 5th March, 2020. I would now like to hand over to Christian Sterr, Head of Investor Relations. Sir, you may begin. Yes. Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our full year 2019 results presentation. Today's conference call will be hosted by Marc Langer, CEO of HUGO BOSS and Yves Muller, CFO. As always, during the Q and A session, I kindly ask you to limit your questions to a maximum number of 2, so everybody gets a chance to ask his or her questions. There's a lot to cover today, so 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. Today, as usual, we will review the 2019 financial year before taking a closer look at our ambitions for 2020. As you would expect, we will also use a considerable part of this call to address the current situation, our strategically important region, Asia Pacific, and also elaborate on how we context of the coronavirus. I'd first allow Yves and myself to recap on the 2019 fiscal year, both from an operational and financial perspective. For HUGO BOSS, 2019 was without doubt an eventful year. Some markets clearly proved more challenging than anticipated, hence weighing on our financial performance, in particular during the 1st 9 months of the year. At the same time, we have made significant progress in executing our strategic initiatives in 2019, something I will get into in a second. This became particularly visible during the important 4th quarter with currency adjusted sales growth accelerating to 4% and EBIT improving by 9%. The performance of our own retail business was particularly encouraging as we recorded a robust 7% currency adjusted growth in the 4th quarter, supported by an acceleration in comp store sales growth to 3%. As expected, the positive effects on the intensification of online partnerships in the concession model and the completed renovation of strategically important BOSS stores carried out in the prior quarters became more pronounced, making an above average contribution to growth in our own retail business in the Q4. In the light of the strong top and bottom line performance during the final quarter of 2019, we achieved our target for the full year. Altogether, sales of our BOSS and HUGO brands amounted to €2,900,000,000 in 20 19, representing a 3% increase of 3% as compared to the prior year. This corresponds to a currency adjusted increase of 2%. I am particularly pleased to see that all of our strategic growth drivers, online, retail productivity, Hyogo and Asia, recorded disproportionate growth and thus substantially contributed to group sales growth. Our own online business grew at a strong double digit rate for the 2nd year in a row. The encouraging sales growth of 35% currency adjusted was not only driven by new online partnerships entered into last year, it also confirms the growing importance of our own online store, hugoboss.com. Last summer, we tapped into important online markets such as Scandinavia and Ireland and are now offering our BOSS and HUO collections online in 15 international markets with more to come. Altogether, our own online business ended the fiscal year 2019 with sales of around €150,000,000 thus accounting for 8% of owned retail revenues. We've also made significant progress in the further optimization of our global store network over the past year. We renovated our largest flagship store globally on Champs Elysees in Paris as well as a large number of other BOSS stores around the globe. Already today, our BOSS collections are shining in renewed splendor in around 100 of our own retail stores. This has not only elevated the shopping experience for our customers, but also led to an increase in retail productivity in brick and mortar retail by a total of 4%. Currency adjusted sales for HUGO also grew disproportionately, up 5% in 2019. This development was largely driven by HUGO's casualwear collection, which resonated particularly well with HUGO's fashion conscious consumers, thus continuing their double digit growth trajectory. In particular, products inspired by graphic, reinterpretation of the HUGO logo, such as sweaters, hoodies and T shirts, continue to grow at above average rates in 2019. The styles developed by Hugo last summer in cooperation with British singer and artist Liam Payne and presented digitally at Berlin's Fashion Week were certainly a key milestone in this regard. As a global brand ambassador, Liam Payne will also influence capsule collection and marketing campaigns in 2020, thus fostering and increasing the brand awareness in the contemporary fashion segment. From a regional perspective, Asia Pacific stood out as particularly positive in 2019. Our successes in this important region were nowhere more visible than in Mainland China, where we once again achieved double digit growth on a common stock basis. We emphasized the importance of the Chinese market for our business with an impressive BOSS Menswear and BOSS Women's Wear fashion show in Shanghai last year. Other markets in that region, such as Japan, South Korea and Singapore also grew nicely in 2019. On the other hand, our business in Hong Kong was down more than 50%, impacted by political unrest and demonstrations, hence burdening regional growth to some extent. Overall, sales in Asia Pacific increased 5% currency adjusted, thus also contributing with above average growth in 2019. To further grow brand momentum in Asia Pacific, we will continue to put strong emphasis on marketing campaigns specifically tailored towards the Chinese consumer. Our latest partnership established in early January with Chinese actor and singer Li Jiezheng is a prime example for this. As a new face for BOSS in Asia Pacific, Li Jiezheng will accompany key marketing campaigns as a brand ambassador throughout 2020. With a strong emphasis on relevant social media platforms, this exciting partnership will help us to drive brandy for BOSS in our strategically important market of Greater China. Our focus on implementing our strategic initiatives is also paying off in Europe. In our largest region by far, we recorded robust growth in 2019 with the currency adjusted sales up 4%. We increased our sales in many key markets, including the UK and France, primarily due to a strong performance in our own retail business. While currency adjusted sales in Germany declined 4% in 2019, we have laid important foundation for future growth in our home market. In September, we opened our largest outlet globally close to our headquarters in Metzing. We also decided to strengthen the entry level price points at key wholesale partners by introducing a suit offering starting at the price point of €399, which is expected to hit shelf with the winter collection in July this year. Our business in the Americas declined 7% currency adjusted in 2019. This development mainly reflects a further deterioration in the overall market environment in North America, where both local demand as well as sales generated from tourists were below the prior year level. This, in turn, resulted in heightened promotional activity, which put a strain on our wholesale business in particular. In contrast, our retail business continued to stabilize during the course of the year as reflected by comp store sales being on a par with the prior year level in the final quarter. Ladies and gentlemen, that concludes my operational review of the fiscal year 2019. I will update you on our expectations for 2020 in just a few minutes. But first, let me hand you over to Yves, who will guide you through the most important P and L and balance sheet items. Yves, it's over to you. Thank you, Marc, and good afternoon, ladies and gentlemen. As Marc already alluded to, in light of the strong top and bottom line performance in the 4th quarter, achieved our adjusted targets for 2019. But still, the financial performance for the full year fell short of our initial expectations. At EUR 333,000,000 our operating result was within our adjusted target range between EUR 330,000,000 EUR340,000,000 and thus 4% below the prior year level when excluding the impact of IFRS 16. This corresponds to an EBIT margin of 11.5 percent for the 2019 financial year. Let me shed some light on the 3 main drivers contributing to the decline in EBIT. 1st and foremost, the lower than expected sales growth clearly impacted our bottom line performance in 2019. In particular, the deteriorating consumer sentiment in North America as well as the difficult situation in Hong Kong were 2 developments that were not predictable a year ago. Secondly, increased markdown activity, particularly in North America as well as slightly negative currency effects, both weighed on our gross margin development. While we also recorded a positive channel mix effect, this was only able to partly compensate for the negative effects. In summary, this led to a gross margin of 65.0 percentage points, down 20 basis points versus the prior year. Last but not least, additional investments in our own retail business contributed to a 4% increase in operating expenses. As already outlined to you in early November last year, these investments aimed at further progressing strategically important online partnerships and tapping into additional key markets with our online store, hugoboss.com. At the same time, in 2019, we have accelerated the optimization of our own store network and renovated significantly more of our stores than in previous years. While these crucial investments weighed on our selling and distribution expenses, up 6% year on year, I'm pleased to see that our emphasis on tight overhead cost management is increasingly paying off. This is clearly reflected in a decline in administration expenses in 2019. To conclude on the P and L, the group tax rate came in at 33 percentage points in 2019, representing an increase of 3 percentage points compared to the prior year. This development reflects anticipated additional expenses related to an external tax order at HUGO BOSS, AG, something we flagged well in advance. Accordingly, net income saw a 10% decline to €212,000,000 excluding the impact of IFRS 16. Now let's move over to the key balance sheet and cash flow items. As promised, back in November, we were able to further reduce inventory growth also in the Q4. Thanks to our strong emphasis on tightly managing inventories, our inventory position ended the year on par with the prior year level adjusted for currency effects. And as a result, trade net working capital improved by 3% year on year currency adjusted. Investments in our business were a key priority in the last year. In addition to the opening of our largest outlet globally, which Mark already mentioned, we also stepped up store renovations significantly in 2019. In this context, we upgraded close to 50 BOSS stores to the latest Future Furniture concept last year and rightsized or relocated close to 10 stores. On top of that, we also further strengthened our IT and logistic infrastructure and continued to invest into the digitization of our business model. As a result, capital expenditure in 2019 rose by 24% to €192,000,000 Despite the decline in EBIT and higher CapEx, free cash flow in 2019 increased a strong 22% to €207,000,000 excluding the impact from IFRS 16, reflecting the strong cash generating of our business model. Improvements in trade net working capital that we achieved over the course of the last year were the main driver for this development. Let me conclude my review of the past fiscal year with a look at our dividend proposal. As already flagged back in November, we clearly recognized the importance of a reliable dividend for our shareholder base. To ensure our shareholders will benefit from the long term success of our business, we are committed to a sustainable and attractive dividend. This is no different for the 2019 fiscal year. Consequently, we will propose a dividend of €2.75 per share for the 2019 financial year. This the corresponding increase of $0.05 compared to the prior year reflects our healthy balance sheet structure as well as our strong cash flow generation, which is expected to continue in the future. With this, ladies and gentlemen, let me hand back to Marc, who will give you an update on our strategic priorities as well as our financial ambitions for 2020. Thank you, Yves. Now let's change perspective and move on to 2020. As you are all well aware, our industry is currently facing high levels of uncertainties caused by the ongoing spread of the coronavirus, which started to weigh on consumer sentiment late January. I will talk in details about our assessment of the coronavirus in just a few minutes. Before I do that, however, let me be very clear about one thing. I'm absolutely convinced that in times of uncertainty, it's even more crucial that we stick to our game plan and continue to focus on the execution of our strategic initiatives. There's no doubt that our strategic growth drivers will continue to be the engine for sustainable, profitable growth in the coming years: online, retail productivity, HUGO and once things get back to normal, also Asia Pacific. Therefore, our priorities for 2020 will certainly include a strong commitment when it comes to the further execution of these strategic initiatives. This will, among others, include initiatives such as the further conversion of online partners into the concession model, the rollout of hugoboss. Com to new markets, the optimization and modernization of BOSS stores in key locations as well as the further push of HUGO in the contemporary fashion segment. Our priorities for 2020 will also include a firm commitment to elevating customer engagement around our core BOSS brand in order to drive brand desirability in the long run. Less than 2 weeks ago, BOSS revealed its fall winter 2020 collection in a future focused show at Milan Fashion Week. A new generation of BOSS men and women showcased designs that seamlessly merged the established course of our house with the spirit of continual innovation. Various celebrities and influencers, among others, our new eyewear testimonial, Hollywood actor Orlando Bloom and the style I Can Car Delevigne attended the event, thus creating buzz on social media. From a product perspective, our commitment to sustainability will become more visible than ever before with various sustainable product launches in the pipeline. In this context, 2020 will see the expansion of our traceable wool designs for menswear and the addition of womenswear pieces to the range. We are equally excited about the launch of our full region suit for BOSS, crafted at our Metzing production facility from our organic European grown linen and made available worldwide in both our own retail stores as well as online. Last but not least, during the upcoming fallwinter collection, we will launch a responsible sailing collection inspired by our skipper, Alex Thompson. Another key focus area for 2020 will be North America. Back in November, we laid the foundation to strengthen our business in the market by announcing Stephan Born as the new Managing Director of HUGO BOSS Americas. As you know, Stephan brings great experience in both retail and wholesale from his former role as Managing Director of our Northern European Markets, which includes the important and highly successful UK market. 1 of Stephan's key priorities will be further optimization of our own retail store network by renovating existing bus stores, rightsizing selling space where appropriate and exploiting opportunities to relocate to better locations. In this context, I'm very happy to announce that our important BOSS store in New York Soho District is currently relocating to an even better location close by, with the reopening plant already for the beginning of April. Exploiting the online opportunity in the Americas will be another priority for the upcoming year. Over the course of this summer, Canada will see the go live of hugoboss.com and contribute to above average growth in our online business in 2020. While wholesale will likely remain challenging also in the short term, it is and remains our firm goal to also stabilize our department store business in North America in 20 with some first successes expected for the second half of the year. Ladies and gentlemen, with this, let me now talk you through our assessment with regards to the situation around coronavirus and the implication we expect it to have on our business. So what are we seeing? First of all, we look back at a very promising and successful start to 2020 with 3 consecutive weeks of strong double digit growth in Asia Pacific, reflecting a highly successful Chinese New Year. However, since the coronavirus began to spread in late January, approximately 60% of our more or less 150 retail points of sales in Greater China were closed throughout much of February. Those that remained open were not only operating at reduced hours, but more importantly, have recorded significant traffic declines of more than 80%. As we speak, across Greater China, traffic is still down substantially, including those stores that have since reopened. On top of this, since the beginning of February, we are recording a softer local consumption as well as a noticeable decline in sales to Chinese tourists in other Asian markets, including Japan and South Korea, but also in some European countries, Italy obviously being one of them. Already at the early stage back in January, we at HUGO BOSS have put in place a cross functional team to monitor the situation in China as well as other affected markets very closely and remain in constant contact with our colleagues there. While our first priority, of course, has been to protect our employees and our customers, we also mobilized all levers mitigate the financial impact on our business as much as possible. 1st, we postponed major investments in Greater China that includes postponing the majority of store openings and store renovations that were initially planned for H1 towards the second half of the year as well as postponing key marketing campaigns and events. Secondly, our Global Real Estate Management team, together with our experts on-site, are in close contact with landlords in order to ease the burden of lease payments, at least to some extent in the short term. Thirdly, in order to protect inventory levels, we reallocated merchandise to other markets wherever possible, while at the same time reducing merchandise inflow to China by cutting back orders for our retail stores. Last but not least, with regard to our supply chain, we have been very close contacts with our key Chinese partners during the last weeks. However, there haven't been any significant disruption to our supply chain so far, and our partners have already restarted their regular production processes. Beyond these concrete initiatives that have already been implemented, let me also be very clear that in order to counteract the financial impact of coronavirus at an early stage, we apply an even stronger focus when it comes to tightly managing our cost base. This includes the cancellation or postponement of any projects that are not deemed to be business critical, particularly in areas of administrative cost as well as a rigid reassessment of new hirings. Despite these measures, we estimate that the economic consequences of the current crisis will have a significant impact on our top and bottom line development in 2020, particularly in the Q1. While the overall uncertainty remains elevated as we speak, we currently predict that the coronavirus will have a negative impact in the magnitude of a low double digit €1,000,000 amount on our bottom line performance in Q1. Before I begin guiding you through our financial ambitions for 2020, which takes the expected financial impact of the coronavirus in account, let me be very clear. I remain absolutely confident in the potential that both brands, BOSS and HUGO have in Asia Pacific. This region is and will remain of utmost strategic importance for our company. So what does this all mean for our top and bottom line expectation in 2020? Against the backdrop of the current macroeconomic uncertainties and taking into account the outlined assessment of the economic fallout of coronavirus, we anticipate that group sales will develop within the range of 0% to plus 2% in 2020, adjusted for currency effects. Growth is expected to vary across regions. While we expect currency adjusted sales to increase at the low single digit percentage rate in Europe, the Americas are expected to see a largely stable development currency adjusted sales. Impacted by the coronavirus, currency adjusted sales in the Asia Pacific region are expected to decline at a single digit percentage rate. Moving on to the bottom line, we expect EBIT to come in between €320,000,000 €350,000,000 in 2020, with the top line performance being the key element to the amount of EBIT that can be achieved. With respect to net income, we anticipate an increase of up to 10%. This should also be supported by an improvement in the group tax rate. Uncertainty will remain high in the short term and therefore expected to burn our financial results in 2020 to some extent, I'm fully convinced that we have built a robust platform over the last years to grow in a sustainable and profitable way. HUGO BOSS is well prepared for long term success. The desirability of our brands, BOSS and HUGO, remains the most important factor in this regard. We will therefore continue to work consistently on executing our strategic initiatives in 2020 beyond. This will form the basis for future shareholder value creation. On that front, my Board colleagues and I will give you a detailed update on our strategic outlook during our upcoming Capital Markets Day, which will take place at our headquarters in Messing on June 18 19, assuming that the situation around the coronavirus will have normalized by then. During the event, you will also get to know our new Chief Operating Officer, Heiko Schafer, personally. I'm very excited that Heiko is joining the HUGO BOSS family later this month. With his strong expertise around sourcing and production, there's no doubt that HEICO will further strengthen our managing board. And with this, ladies and gentlemen, Yves and I are now very happy to take your questions. Thank And your first question comes from the line of Antoine Belge of HSBC. Please ask your question. Yes. Good afternoon. It's Antoine Belge of HSBC. Three questions, please. First of all, I'd like to have a clarification on what you said about the impact in Q1 from the virus. I think you said a low double digit amount because you were quoted this morning on Reuters with a low single digit amount. So low double digit, meaning, let's say, if it's around €12,000,000 would that be comparable to the €55,000,000 you had in last year, so around 25% impact? Second question relates to your guidance. So you guided for the overall retail growth, but without quantifying guidance for like for like. I think it might calculation I'm not too wrong. The contribution from the conversions like Zalando plus the fact that some of your stores are reentering the like for like after innovation. I'm assuming that most of the growth in retail would come from those effects rather than like for like and I assume like for like flat. So is that calculation broadly right? And certainly regarding the U. S, once I understand fully the guidance for Asia, I was a bit surprised to see only flat for the U. S. So is there any impact from the virus there? Or is it just that you need to do more cleaning in U. S. Department stores and maybe, I don't know, outlet stores, etcetera? Thank you. Thank you, Antoine. And let me just clarify the first point. I hope it was just maybe a transfer mistake, but we were consistently guiding the market to expect a low double digit impact on EBIT in the Q1. And that's we ask for your understanding, we can't make it even more concrete because I think it's already quite precise quantification of the impact on Q1 at this point in So it should have been also in the Reuters quote a low double digit impact on €1,000,000 in the Q1. We are not giving a like for like guidance at this point in time. Clearly, as I said, we driving store same store productivity, square meter productivity remains one of our core elements. And you have seen good progress, even acceleration in the course of the year. We have, I think, in normal circumstances, the Q4 can be seen as a very good proxy that we're making very good progress in this regard. But I would ask you for your understanding that clearly like for like, in particular now for Asia, with the closures, has been severely affected. So we are not in the position to give you a like for like guidance at this point in time. Hopefully, we'll have more clarity to that when we speak again later in the year. On Americas, that's a market that's still very much driven by the wholesale business. We have seen a very disappointing wholesale development throughout the course of the year. We do expect some improvements. However, we expect the wholesale business to still to weigh negatively on our business to some extent, particularly in the first half of the year. We have seen improvement on the retail side of our business. I think I flagged the flat like for like development in this region in the Q4, which is a significant improvement towards the performance we've seen earlier in the year. But we feel comfortable with an overall flat development for the U. S. Market. It's less for us impacted by a tourism inflow. Even so, we have seen in Europe and North America clearly also less Chinese tourism than we have seen 12 months ago. Thank you. Maybe just a follow-up. I think you expect a gradual improvement. What about the notion of pent up demand? I decided that you could catch up a bit of what was lost. I mean, I think that was discussed maybe more for handbags like Vuitton, etcetera. For your type of products, do you think that what is lost is lost due to seasonality? Or do you expect that when demand will pick up, especially in China, that there will be pent up demand? Or is not something that you've baked into your guidance? We would always say to you that a sharp pursuit is a lifetime investment, and there's always a right time to purchase that. But we recognize that it's not the same commitment than maybe your Tiffany engagement ring. So I think you're right in your assumption that we have to assume that apparel is a bit more buy now, wear now than some other luxury categories. You might wait a couple of years for a year. Kelly bag, but that's not our core business model. So I think that's not part of our assumption to see that some of the demand will recoup in the second half. We talk about a normalization of demand, but not that there will be something that will come back stronger than we would expect on a normalized level. Your next question comes from the line of Juergen Kollb of Kepler Cheuvreux. Please ask your question. Yes. Hi there. Thank you very much. Two questions from my side. First of all, on free cash flow generation, I would like to have your views and your comments on the drivers of free cash flow this year. I understand you don't want to give precise guidance, but maybe some thoughts on the individual levers of the free cash flow generation, especially with a focus on the net working capital. And within this net working capital specifically on the inventory situation where you see the challenges, how you try to mitigate the situation there that would be helpful. And the second thing is more precise on a product category and here specifically on the suit side. I think when it comes to BOSS, the brand BOSS, you mentioned that also the business or the more formal dressing was actually doing fine for you. So maybe a couple of words on the suit as a category, how you see that evolving and how it performed especially in 2019? Thank you. So good afternoon, Jurgen. I'll try to take the first question regarding the free cash flow and regarding net working capital. So in our assumptions, I think the receivable parts and the trade payables are more or less perceived on the same level. I think the key question is referring to the inventories. And I think we have improved our situation until the year end 2019 already. But of course, we will be affected by the virus performance in terms of outflow. And for the time being, we take every measurement that we can take, for example, reallocating existing merchandise to other markets that are demanding those merchandise, will be more concrete, so transferring it from Asia to other markets like Europe and in the Americas. And secondly, clearly, what we are doing is that we are reducing the retail buy for the second half of the year in order to mitigate the risk. These are already measurements that we have already taken in order to tackle the issue of the inventories. To be very frank, it's very the uncertainty is very high at the moment regarding inventories, and I think every guidance is like a crystal ball. It's not very serious if I talk about these things. And let me follow-up on the question on Surfing. We are as you know, we were in Milan with our fashion presentation on the BOSS women's wear and the BOSS men's wear, and there was a clear trend to sophisticated tailoring. So a lot of voices in the industry are predicting kind of like the hype around this merge between luxury and sportswear, to some extent, is getting back to normal. So we are quite happy to see that because if any brand stands for tailoring competence, it's BOSS. And we have seen a very solid demand for our suit business. Am I happy with my 2019 performance in suit? I would still say no. That's why we are working very intensively with Ingo and the team on some new demand for newness, great stories to tell. And also in terms of price points, I think that's more relevant for the German market, but it's a very sizable market. We have now taken first orders. So we have received, say, feedback from important German wholesale partners, and this was a very strong reception from the market that BOSS is now entering this in terms of volume and profitability, important price segment of $3.99 $4.49 price points that were not covered as part of our global pricing strategy. And to be very clear, it's not alluring of prices. It's an additional offer that we are now introducing with BOSS in this German market, which will already give us a good impact, a positive impact on our wholesale revenues for the second half of twenty twenty. Excellent. Very good. Thank you. Thanks, Jorg. Thank you. And your next question comes from the line of Elena Mariani of Morgan Stanley. Please ask your question. Hi, good afternoon, Marc and Yves. A couple of questions from me as well. The first one is about the trends you have observed at the beginning of the year. You've mentioned that you've seen strong double digit growth in Asia. I was very curious to hear whether even in Europe and in the U. S, you have seen a sequential improvement versus last year. This would be helpful for us to understand how things were trending excluding the impact on of the virus and the overall brand momentum before the outbreak? And the second question is about your guidance. I just want to understand whether in the bottom part of your guidance, so basically flattish organic growth and EBIT declining year on year, you are factoring in a potential meaningful slowdown in travel retail and maybe a longer than expected travel ban across several geographies that might go well beyond the next couple of months. Is that then is this factored in at this point? Or you believe that right now it's too early to tell and if the situation is going to be worse than expected in Europe, then maybe your current guidance will need to be readjusted? Thank you. Yes. Thank you, Elena. Yes, I mean, it was truly a very encouraging start into the year. And I'm happy that we didn't give our full year guidance on the 2nd week of January because it would be a bit caught on the wrong foot in this regard. But it's not worth much now to say because the world has clearly changed, so we have to deal with the consequence of some of the coronavirus. But you're right, it gives us some confidence that we have seen a continuation of the positive momentum in the U. S, in Europe. So the trends that we have seen in the Q4, I'm absolutely convinced, is the underlying trend to our business that also will help us to once we get this coronavirus behind us, will help us to drive our business. And again, it confirms that the 4 growth drivers initiatives to our business are actually paying off because it's particularly resonated well in the Q4. And as I said at the beginning of the year, growth in Asia, online growth, HUGO and sales productivity improvements. You're right in our and we have not the crystal ball to predict to what duration and to what extent important markets will be affected by the coronavirus. We have to deal with the fact that our business has been already affected other Asian markets. Our guidance factors in not a short term recovery, but we expect a return to normalized trading over the summer, so which will make the total duration on the impact of the business between 4 to 6 months from the outbreak. Of course, we expect, like we already see with a number of cases of new cases in China to stabilize that already in the Q2, we will see, at least in China, a smaller impact than we have seen now in the course of February that's already reflected by the fact that the large majority of our stores are back in operations in China. But we do expect that Asia Pacific, in particular Japan, Korea and Singapore will have an impact beyond just the Chinese tourism that have clearly declined. Also domestic consumption is affected. And this is I think Antoine asked a question earlier about impact in Americas But we have seen Europe and Americas to be less But we have seen Europe and Americas to be less affected. And your assessment is absolutely right. A flat net sales development has a more severe from today's perspective would be the more severe impact from the coronavirus from what we know today, which just then makes the lower end of our earning guidance more likely. If we see an earlier or less intense impact from coronavirus, we expect to deliver a 2% top line growth currency adjusted and to deliver against the upper end of our EBIT guidance. And we will provide you in due course, Q1 will be our first reporting card in actual performance. Then the our AGM meeting in May and latest at the Capital Markets, we will not only give you an updated projection for 2020, but also when we do expect to achieve also on the time axis to achieve the 15% EBIT margin that we still see as a midterm objective to our group. Thank you. Just two small follow ups. Sorry, I wasn't clear whether you've actually seen any improved performance in Europe and in the U. S. At the beginning of January? And then second follow-up, can you tell us a little bit more about what you have seen in Europe across your retail store network over the past couple of weeks? Thank you. Just to be clear, Elena, I know there's a lot of question about current trading. We will not comment any further on current trading on the Q1, particularly by markets and regions. But to answer your question more precisely, we have seen a continuation of the positive trends from the Q4 also going into the 1st couple of weeks of trading in Europe. But also here, we have now a new situation because also America and Europe, to a lesser extent, is affected by the spreading of the virus into these regions of the world. Okay. Thank you very much. Thanks, Elena. Thank you. Your next question comes from the line of Jaina Mistry of Deutsche Bank. Please ask your question. Hi. Thanks very much for taking my questions. I've got 2 quick ones. First off, could you talk about how you see gross margins evolving in full year 2020 and the key moving parts there? And my second question is, could you tell us how many stores will be in the like for like calculation in 2020 and what this number was for 2019? Well, let me start with the second one because that's something we have to ensure that we have similar level of disclosure. So let me just we have to review on which granularity we provide the size on our like for like universe, but this is something where I will ask our Investor Relations team, who is also present today, to check whether we have this information available. Just in terms to be clear for everybody, our like for like universe is always redefined at the beginning of the year based on all stores that are open and operated for the last 12 months. So there's a continuous change due to new openings, renovations to that. But we probably can give you after the call indication what is now the first rough cut estimation from the team that in terms of percentage, there's not much change. About 2 thirds on our retail network is represented by like for like. But we will check whether we can give you more color to that or not. If you want to give some the answer question on gross margin? Yes. The gross margin, so we didn't give a concrete guidance for the gross margin because of the high uncertainties overall that we are seeing and want to simplify actually our financial KPIs as well in our guidance. I think the moving parts for the gross margin to come will be actually an expected positive effect from channel mix due to more moving parts from wholesale to retail. This will be a positive effect. And the negative effect might be affected might be coming from higher rebates that can be granted because of the coronavirus situation. But these are the moving parts. And I just can repeat myself, it's of high uncertainty at this moment. Thank you. And if I can ask just one quick follow-up. Do you expect currency to be positive on gross margins this year? For the time being, we expect that the currency will not have a severe effect on the gross margin so far. But of course, this is a moving part in course of the year as well. But for the time being, that's the case. Okay. Thank you. Thank you. Thank you. Your next question comes from the line of Catherine Parker of Jefferies. Please ask your question. Hi, good afternoon. Thank you for taking my questions. So my first question is on the creation of the COO role. I was wondering if you plan to make kind of any changes to your sourcing And maybe what changes you were hoping to achieve with the procurement and production? And then my second question is on the store refurbishments to the new store concept. And I wondered if you could give any guidance on how many extra stores you plan to refurbish or relocate in 2020? Yes. I mean, first, let me say I'm extremely happy with the performance of our refurbished stores. And I know increasingly everybody of you have been able to visit them, either you're based in London, Paris or now a few weeks from now also in Soho in New York. We have, as I think, I said on the call already, more than 100 with the new concept, and we are planning to add about 50, either with new stores, renovation, relocation that will have this new store concept where we're absolutely convinced that it's not only far better customer experience visiting these stores, but it's also an important element to drive higher sales density. So we will continue, as I said, in Asia, we will have some delays due to technical constraints. Some of these malls are now closed. But we are sticking to our game plan to renovate and bring about 50 POS to the new level. The appointment of Heiko Schafer is something, as I said, I'm very happy and excited about that the Supervisory Board appointed him as a Chief Operating Officer to Hugo Boss. First, it's his experience. I mean, he has demonstrated a long track record working at Adidas, working at other fashion firms, especially in a faster moving environment that he brings additional perspective in speeding up our development and sourcing processes. He has demonstrated a very keen focus developing and sourcing products at superior quality at very competitive prices. Our COGS element for the P and L is a major element where we continue to see significant opportunities to drive profitability going forward. Last but not least, what I found especially exciting about him, he is one of the leading hands expert in the industry when it comes to further digitalization in our development processes to take full advantage of technology when it comes to taking later design decisions. So to take something that's clearly not broken, but it's already in good shape, but to take it from good to great is clearly mandate we expect HEICO to deliver at HUGO BOSS. Thanks very much. Thank you. Thank you for your time. Your next question comes from the line of Thomas Chiavo of Citi. Please ask your question. Good afternoon. Thank you. I have two questions, please. First one on cost inflation. If I take the midpoint of your revenue guidance, so let's say plus 1 organic and the midpoint of your EBIT guidance at €335,000,000 that implies very low single digit cost inflation this year, assuming obviously some gross margin pressure. Is that a fair assumption for cost growth this year? And if the revenue guidance were revised down due to disruption from coronavirus in H2, have you identified additional cost saving you could cut in the second half of the year? And secondly, maybe, Marc, could you share with us some of the topics of discussions you had with the supervisory board over the past few months or the past year, particularly with the Mazator Brothers, given they've recently raised their stake to 15%, they've been a long standing partner and believer in Hugo Boss. So I don't know if there's anything you can share now or if that's something for discussion at the Capital Markets Day. Thank you. So, Thomas, I will take the first question regarding cost inflation. I think your hypothesis overall is right. What we all do is clearly to execute on the efficiency program that we are doing in order to limit the cost inflation in every respect. And this is what we're continuously doing. And even now in these times, in these turbulent times, I think we are even more focusing on these cost items. Just to give you one indication, first in our guidance, you have seen that the from a nominal point of view, that the investments will go down in comparison to 2019, but there is one big effect, of course, we are because in the last years, there have been the big investment into the factory outlet in Metzingen. But on the other side, I can tell you that we clearly are increasing the efficiency of the CapEx by around 20% to 20 5% in order to somehow speed up our remodeling without increasing our investments and without losing the quality of the products, just to give you one example of those. And of course, we are very active, as Marc pointed out during his speech, to cover all the remaining costs, especially in China. If the stores are not open, we go there and we negotiate with the landlords in order to get some short term release on the rental expenses. So what I try to convey is we are very close to the business and try to somehow mitigate the negative effects coming from less top line to compensate this on the cost side. And Thomas, to the second part of your question, I think it's clear that any discussion between the Managing Board and the Supervisory Board is clearly confidential, and we will not comment on any of these internal discussions publicly. But I think there were 2 events, and I think you already were referring to that. One was the increase in the shareholding from the Mazzoto family, which was sizable. I mean, it was almost a 50% increase in their shareholding, buffer threshold of 15%, which also we decided in collaboration with Luca Mazzotto, who is representing Mazzotto family and is also a member of our Supervisory Board, that first, to be very clear, we're very happy by the support and the investment and the commitment from the Mazzotto family demonstrated by this increase in investment because it's a dual role that Luca and Gaetano clearly represent member of the Supervisory Board, but also as our single largest shareholder that this should be seen by the Capital as endorsement that this company has and the potential that's not fully reflected yet. And we have to there's a strong belief at the potential from the strategic initiatives that we're working on. So the second is what we announced today. Of course, there was an intense discussion on the extension to the Managing Board. And as I said earlier, I'm very happy that we have a very broad consensus that this is an important role that should be filled on the Managing Board. It has a full endorsement from the existing Managing Board, and we are truly looking forward to the Heiko joining us in a few days. What we will share with you as part of the Capital Markets Day in June is clearly then aligned with the supervisory board. What is our financial ambition for the years to come? Where do we stand in executing in 2020 despite the impact of a headwind from coronavirus. So this will be next important data point that we'll share with you, but which is again very aligned with the Supervisory Board. Thank you. Just a follow-up on the CEO appointments. Mark, in what way will your CEO role evolve in terms of your day to day, your main focus? What are the new projects maybe you had in mind and you couldn't implement because of being perhaps a little bit stretched? Is there anything you can share in the way the COO, COO structure will evolve and your role in particular? Yes. It's a very valid point. And to be clear, first, I would I will ensure that we have a smooth transition in responsibilities on the operation side. And I'm absolutely confident that this will happen in a very smooth and effective way. But it's clearly also the intention to give you more time to focus even more on the retail side of our retail and wholesale side of our business. I think it's an absolutely right thing now to do to give me also my role for the key function that is decisive for our success going forward. So flexibility and ability to take even more focus and time to deal with our markets and distribution channels and business partners. So that's clearly the intention from us. Thank you, Marc. We're wishing you well. Thank you, Thomas. Thank you. Your next question comes from the line of Philippe Frey of Warburg Research. Please ask your question. Hello, gentlemen. A couple of questions from my side. First of all, I think you alluded already on your happiness with your refurbished stores. But I think in the past, you provided us some numbers on the productivity uplift. Can you be a bit more precise there as well and particularly compare the performance of the newly renovated stores with the older cohorts, which was started? How much difference are you seeing there? Secondly, in regarding your online concessions, Can you comment a bit on the volume uplift you are seeing upon conversion into concessions. Is it fair to assume that your volumes also increased not only your sales, which should be obviously the case? And lastly, a bit on your budget for like for like cost of your retail network. Is it fair to say that this is likely to stay below inflation in this year? Or what's your take there? Yes. Let's start with the first one with the refurbished stores. I think overall, it's clear we have seen this also for the last quarter that we talked about that we have seen, particularly for these stores, which the vast majority are still in the non like for like part of our business because they have been renovated over the last 1 or 2 years. We are very happy that or we have seen a very encouraging uplift compared to the pre performance of these stores. So we continue to see the trend of a better sales contribution, higher sales density from the refurbished store. I think it will be a key element because driving sales density is one of our foremost important strategic initiatives. We will focus on that one as part of our Capital Markets Day in June in more detail to give you also more color and more numbers to what is in the specific uplift we have seen pre and post renovation. On online concession, we believe there are clear reasons why we see also unit sales uplift post the conversion, which makes also this conversion attractive both for HUGO BOSS and also our former partners. So very often, we convert from wholesale to retail. The most obvious one is the access to a significantly larger inventory pool once the inventory is managed by HUGO BOSS versus the partner. Given the size of our own hUGO.omboss.comecom business, the pooling effect across major now big online platforms like Zalando, which is in concession. Clearly, any new partner now has the enormous benefit than whenever he now this partner joins the concession business in key regions, Europe and North America, it's very attractive for them because their gross merchandise value will clearly increase with the access to the full inventory depth of HUGO BOSS. And to what degree we have seen now also in terms of unit acceleration, it's very difficult to quantify. So sometimes we look at percentage growth rate, absolute growth rate prior and post. And in most cases, to your point of view, we have seen the expected uplift also in unit sales. So we not only see the retail conversion effect on top line, but also an acceleration in the unit sales. Now you need to help me on the 3rd question was? Budget below personalization. On the well, as I said, we are now the one we have to manage now short term is that we are smart in terms of staffing, that we ensure that staffing and this is something we work with from our personal management, that we have the right staffing levels to mention our pay to sales, which in making the year is difficult in some cases because we don't want to lose high talents during this time of depressed sales. But where we see a high willingness, especially from Asian landlords to help or to work together is to get at least a temporary cut on rental obligation. So this will help us to mitigate the impact on the inflationary aspects. These are the 2 elements we work with, with a strong progress, as we mentioned in the call, to get rent concessions from landlords, and we're making good progress in this respect. So all the best. Thank you, Philip. Thank you. Your next question comes from the line of Terry Cota of Societe Generale. Please ask your question. Yes, good afternoon and thank you for taking my questions. First, on the outlet sales, I believe they rose as a percentage of sales last year. I was wondering whether this was due to a switch of the Marjane business from stores to outlets that will be in the context of the Medsengren reopening? Or is it reflecting a rise of Marjane revenues as a whole? And if you could provide a measure actually of these overall markdown revenues? And secondly, on online business, on the retail online business, if we could have a breakdown on the €151,000,000 full year sales reported. On my estimates, but they could be totally wrong, I'm sensing that the bos.com sales grew at the round mid single digit pace last year. I was wondering if that was correct and if you had envisioned a slowdown for that part of the online business. Thank you. Let me start with the outside question. You're right. One of our decisions also when you talk about the online concession that it gives us more control at which price and which circumstances merchandise that was not sold at full price will be dealt at the end of season. And like we have done in physical retail, we would rather prefer to rotate fresh merchandise on these full price locations than to use these full price sales outlets for secondary distribution. So that's one of the elements that we have seen a shift of revenues from which was indirectly part of our wholesale online concession now to our own controlled outlet distribution. That's one aspect. But what is also clear, whenever you go to Woodbury Common in New York or Bicester, these are winning sales format just voted by consumers. So whether we like it or not, I was in La Valle just before Christmas. I saw the long line, especially outside of the Gucci store. There is clearly a preference for many consumers to take advantage of the price discounts offered by the brands in a factory outlet environment. And our objective is to be best in class when it comes to menswear apparel in these outlets. And the productivity improvements, also the upgrades we have done in Vista and Woodbury, and the most pronounced one is now missing, is clearly that we will ensure a world class shopping experience also in this outlet. So it's two factors. We are absolutely in favor to clear all inventories rather through our outlets, which is giving us access to inventory. But second, also to have in the world class outlets a good presence. Overall, we expect our outlet share to be around 25% on retail. So this is what we consider as a healthy balance to our business. But the year 2019 was the year where we've seen stronger growth in our auto business relative to the full price business. On the lines, I think your question please go ahead, Thierry. No, sorry, excuse me. And I was wondering on to get a sense of the scale of the Mar Down revenues as a whole, is it fair to estimate them at about half of the group sales through outlet and how well you said? On revenues. No, no. That's much smaller. It's about as I said, it's about 25%. Well, today, it's slightly higher, but our target is to have around 25% of our retail sales by our factory outlets. I meant including the markdowns in stores? Well, I think that's if you calculate it that way, Thierry, I think that's a number nobody in the industry can provide you because it's a natural part of also a store, maybe not at Louis Vuitton, but any other player in the industry to offer your customers an end of season sale. And I think it's a valid strategy to pursue also to offer to for a limited time period also sales periods in our stores. So we will not separate these as outlet sales. This is a natural part of an apparel business to have the sales period also in our full price stores. Okay. And just to clarify on the dotcom versus the concessions, I'm not sure how you calculated that, but the development of our own dotcom business is higher than what you estimated, but we do not provide a breakdown between the concession, which is more driven also clearly by the expansion of the business. And it's not organic in 2019, but also the dotcomgrowth was above the mid single digits that you indicated. Okay, great. Thank you very much, Marc. Thank you, Thierry. Thank you. Your next question comes from the line of Piral Dadajana of RBC. Most of my questions have been answered, but seeing as I'm on the line, maybe I could ask around the range and the offer overall. Could you perhaps talk around what changes or improvements you're making in terms of the overall range architecture, both in terms of the breadth and depth of SKUs across key categories? And then maybe just provide a little bit more color as to the rationale and the broader thinking around building out entry price suit offer in Europe. Is that a sign of things to come perhaps in terms of further development of the e commerce growth for 2019 and ask the question in a slightly different way. Are you able to perhaps help us understand what the underlying like for like or the excluding conversion number percentage growth would be for e commerce for the year, just to help us get a feel for what the underlying trend is doing before adding on the impact of conversions? Thank you very much. Yes. Let's start with the second one. Clearly, you have seen the 35% overall growth in ecom with the acceleration in the 4th quarter. The like for like is predominantly our own dotcom business. So it's kind of like a smarter way to get the number that Thierry was already trying to get from us because the like for like base on the the low double digit growth on the like for like base to give you an indication for our overall ecom business that's either controlled via concession or dotcom. In terms of complexity, yes, it's in addition in terms of complexity, what we will now introduce, it's an automatic expansion on our suit offering with these new price points offered in Central Europe. Overall, I'm happy with the streamlining of complexity that was a side effect on the 2 brand strategy, particularly for BOSS where we have integrated the BOSS Green and BOSS Orange offer into the overall BOSS offer we have seen over the last years a significant optimization, in particular in the sportswear part, taking out overlaps between Boss Black, Boss Orange and Boss Green with the now integrated offer. So the rationalization on complexity is more or less done, and we have seen over the last seasons a relatively stable development in the overall complexity. But this is something we have to review season by season and might be also an element in the discussion with Heiko in his new role that we see that we will further optimize and streamline the offering. Keeping in mind that particularly we are our own biggest customer and the way we can bundle volumes for our own retail businesses will allow us not only to manage complexity in the development, but also to have better sourcing volume when it comes to buying and producing these Bostwick goods in the future. Okay, brilliant. Thank you. Yes, we had the underlying like for like at about plus 11, plus 12 for e comm. Just on the product maybe, since you've integrated BOS Orange, BOS Green, BOS Black into your new label or banner structure, Could you help us or remind us how much you've rationalized the overall SKU count? So how many sort of duplicate lines or products have you taken out of the business to reduce that complexity that you referred to? As I said, it was particularly important for the sportswear part, which is also in terms of revenues, the larger part to it because we didn't offer suiting on orange and green. But we if you take 2018 as a base, we reduced on the spot aside roughly 30% on the complexity until the fiscal year 2020. Got it. And would that would it also be a similar number for sort of jeans, polo T shirts and other sort of large Exactly. That's all optimized. It's all part of what we described as casualwear or sportswear. This is exactly jeans, T shirt, outerwear, jersey product in general are key, and knitwear are key elements on the spot where we're seeing this optimization. And your last question comes from the line of Volker Bose of Baader Bank. Please ask your question. Yeah, hello gentlemen. Thanks for taking my question. Three questions. First on coronavirus, do you expect any disruptions in your Asian production supply chain, which could become visible in the second half of 2020 with the delivery of the fallwinter collection into your stores? 2nd question is on the new COO. What are the key and most urgent projects on Mr. Schafer's agenda? And final question is on the women's segment, which was again down by minus 2%. So what is the strategic outlook for the women's segment going forward? Thank you. Yes. Let me start with the women's wear. We have seen also for women's wear a very solid finish to the year. Return to growth, even though it was a bit more muted. But I'm overall happy with the development we have seen. Also the feedback now for the upcoming collection is positive. So there's clearly with the support you're seeing with the Fashion Show Milan, as we speak, there's a major launch, one of the so called blockbuster fragrance launch together with Coty on a women's wear fragrance, women's wear only. So it's not like with Bostascent, both gender unisex launch is now alive. Bossa Life has a fragrance with the women's wear with a strong testimonial with Emma Thompson. So I'm very happy to see good momentum on women's wear. So let's see what will be the development we see in 2020. On the coronavirus, on the sourcing side, I think we gave a brief statement already as part of the call. As we speak, we see all our Asian suppliers being back in operation. So there was slower start up of production due to the fact that travel within China was a bit in our supply chain, which could have an impact on product availability for our fallwinter merchandise. We are rather now taking a cautious view on some of these buying decisions, as I said earlier, but we do not expect a disruption from a sourcing side to that. From the priorities from Heiko Schafer, I think I touched on that already earlier in this call. It's further enhancing capabilities of our operations, sourcing and production side. There's clearly an enormous opportunity to become even more efficient in terms of product costing in the product engineering, and this is an area where he brings particular expertise from his former role. But it's not only on the cost value ratio for our product, it's also on the development process as such, where he has demonstrated in previous assignments that he is capable to install a very fast reactive development processes that allows also our creative teams to take later design decisions on colors, on certain fabrics using digital development platforms that we have started to introduce. And I believe with his experience and his knowledge, he will just take it to the next level. These are just 2. As we said, he will be starting a few days from now. Clearly, he will bring a fresh view to the operation of Farxener Schugelbrot. And he will clearly be available to you to answer his to bring his perspective to it when we you will meet him at the Capital Markets Day in June. Okay, perfect. Thank you very much and all the best. Thanks, Marco, for your time. Thank you. There are no further questions. Please continue. Well, thank you, ladies and gentlemen, for your time today, for joining our call. Again, as always, there's any specific numbers you would like to dig into into more detail where you were not happy with the answer from the CFO or CEO, Christian and his team on standby to answer your questions. Let me conclude with thanking you for the participation and hope to see you soon. Bye.