Earnings Call: Q4 2018

Mar 7, 2019

Afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's HUGO BOSS Full Year Results 2018 Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Thursday, 7th March, 2019. I would now like to hand the conference over to your first speaker today, Mr. Christian Stoeur, Head of Investor Relations. Please go ahead, sir. Thanks very much, and good afternoon, ladies and gentlemen. My name is Christian Schler, as you know, and I'm heading up the Investor Relations activities here at HUGO BOSS. I would like to welcome you to our full year 2018 financial results presentation. Today's conference call will be hosted by Marc Langer, CEO of HUGO BOSS and Yves Muller, CFO. We have a lot of topics to cover today. So let's get started and over to you, Marc. Well, thanks, Christian, and good afternoon, ladies and gentlemen. Also from my side, I would like to welcome you following our meeting either via the web or over the phone to the presentation of our 2018 financial results. In the next 30 minutes, Yves and I will discuss our 2018 fiscal year operational and financial performance before taking a closer look at our expectations for 2019, the 1st full year of our mid term strategic business plan. But let me start with a quick review of the 2018 fiscal year. I'm pleased to report that we achieved our targets for 2018, thus delivering on what we had promised almost exactly 1 year ago. Back then, in March 2018, we highlighted the importance of successfully implementing our strategic priorities as they will be the key enabler to accelerate brand momentum and to deliver sustainable profitable growth. With the currency adjusted sales growth of 4% to €2,800,000,000 we have increased our pace of growth as planned. Even more encouraging is that this growth was broad based, no matter whether we look at the performance by region or by sales channel. Above all, our own retail business and here, in particular, our online business enjoyed dynamic growth in 2018. While sales growth accelerated in all regions, it was particularly in the important Asia Pacific region where the positive trend from previous years continued. Despite some uncertainties with regards to the strength of the underlying Chinese economy, our Chinese business continued to record over proportionate growth in 2018. This positive sales development does not only show that both BOSS and HUGO resonate well with our customers, it also means that the consistent execution of our strategic priorities has started to pay off. Besides sales, operating income also turned out as forecasted at the beginning of 20 18. At €489,000,000 EBITDA before special items remained on the prior year's level. A series of investments to ensure sustainable profitable growth was the reason why we have not yet converted sales growth into higher profits. This included especially investments in the quality of our products and in the digital transformation of our business model. I'm particularly pleased that we also made significant progress in implementing our strategic priorities in 2018. In this context, we are very proud of the successful realignment of our BOSS and HUGO brands, aiming at addressing our customers clearly and more consistently through our 2 brand strategy in the future. With the launch of the springsummer 2018 collections, our customers were able to experience the new brand positioning for the first time last year. And also, the 2 brands are clearly distinguishable from each other in terms of their individual attributes, targeting different customers, they embody the same high values such as quality and fit, innovation and sustainability. It is these attributes making both BOSS and HUGO the preferred brand of choice for our customers. While the feedback we get from our customers following the brand realignment is encouraging to all of us, it is important that we continue to listen carefully to what our customers have to say, be it through our physical stores, our own website or the various digital channels. In doing so, we will create the best products in our industry, maximize customer satisfaction and drive brand desirability. From a brand perspective, clearly, the BOSS and HUGO fashion shows were particularly highlights in 2018. In September, we presented BOSS Menswear and BOSS Womenswear together, again for the first time as part of the New York Fashion Week, With the theme California Breeze, the new springsummer 2019 collections created excitement and received a very positive feedback. The event also left a strong mark in the digital world, where we reached more than 50,000,000 fans and followers throughout our various social media and brand channels. HUGO has already presented its springsummer 2019 collection in July as part of the Berlin Fashion Week. Inspired by those who mix and match styles of different decades and to create their own aesthetics with striking neon colors, light fabrics and contrast details, HUGO reflects the modern street style of Berlin's Mixmasters and club scene. We also made significant progress in further developing our distribution strategy. This was true especially for our online business, which, as you know, is of strategic importance for us. In 2018, we recorded strong double digit growth in our own online business and for the first time achieved sales of more than €100,000,000 This is proof positive that we successfully implemented improvements through the hugoboss.com website and that customers are responding very well to our online presence with this consistent alignment towards VOS and HUGO. To further strengthen our digital footprint, in fall 2018, we intensified our partnership with the online retailer, Zalando. While for the first time, we added BOSS businesswear to the product range available through Zalando, importantly, from now on, we will be offering this collection via the Partner Program platform by ourselves, from product presentation to pricing to fulfillment. I'm convinced that we'll be able to serve the needs of our customers even better in the future with this sort of cooperation. Consequently, we have set ourselves a goal of entering into further cooperations in the online segment in the coming years, starting in 2019 with a strong focus on Asia Pacific and Europe. In 2018, we also successfully advanced our most important distribution channel, brick and mortar retail. By rolling out our new BOSS store concept, we further optimized and modernized our store portfolio. Already today, our customers can experience our menswear and womenswear collection in a new exciting environment in 26 BOSS stores worldwide. With modern architectural features and a large number of digital services, this store concept guarantees customers a unique shopping experience. Importantly, the new store concept has also started to yield financial benefits as reflected by improvement in sales, units per transaction and store productivity, which we are able to witness for a number of renovated stores. HUGO has also been presented itself with the innovative new look in many major cities since 2018. The first HUGO stores with a unique store concept opened last year in London, Paris and Dubai, among other key metropolitan areas. In total, we have opened 12 HUGO freestanding stores in 2018 and see the potential for adding additional openings in 2019 beyond. Our fashion conscious progressive Hubert customers from all over the world are impressed by our unconventional store design and the tight integration of social media features. While we truly believe in HUGO's ability to excite our customers in a mono branded environment, we will carefully assess future store openings by their potential to drive profitable growth for our company. To conclude our strategic initiatives, we have also made very good progress in driving the digitization of our business model. We increasingly develop and distribute our collections using digital tools. This enables us to respond faster to changing market trends. This is particularly true for HUGO, our digital speedboat, where product development for certain parts of the collection is fully digitized already today. For distribution for wholesalers, we rely more and more on the use of digital showrooms, which have been in operation for the HUGO brand since the end of 2017. Digital showrooms allow our wholesale customers to browse the entire HUGO collection and enable orders to be placed directly. And in our physical stores, we provide customers with a high quality and seamless shopping experience, thanks to a large number of digital services across all our distribution channels. There's no doubt, The digitization of our business model from beginning to end is in full swing, and we are excited about the many opportunities that will come with it in the future. Ladies and gentlemen, this concludes my review of the operational highlights of 2018. Before I talk you through our operational expectations for the 2019 fiscal year, let me hand over to Yves, who will give you some more details on the financials for 2018 and the financial outlook for 2019. Nipp, it's over to you. Thanks very much, Marc, and good afternoon, ladies and gentlemen. As Marc already mentioned in my comments today, I will focus on the financial highlights for 2018 2019. As you know, this was the 1st full year for me as the CFO of HUGO BOSS. I'm encouraged that we delivered on our top and bottom line targets for 20 18 despite some external headwinds that the industry had faced during the course of the year. As promised and as Marc already alluded to, our strategic initiatives have yielded an acceleration in sales growth in 2018. Group sales increased by 4% on a currency adjusted basis. In euro terms, sales were up 2% to €2,800,000,000 reflecting the appreciation of the euro against most other currencies in 2018. All three regions recorded currency adjusted sales increases in 2018. Europe was up 4% in currency adjusted terms, benefiting in particular from double digit growth in Great Britain and solid growth in most of the region's other markets, including France and Benelux. The Americas were also up 4% on a currency adjusted basis, thus exceeding our initial expectations of a low single digit increase for the full year. The important U. S. Market returned to growth in 2018, up mid single digits. Lastly, looking at Asia Pacific, the region recorded a strong 7% increase on a currency adjusted basis. Momentum in China remained strong throughout 2018, resulting in high single digit sales growth. Japan was in especially bright spot in the region, recording low double digit growth in 2018. By distribution channels, own retail sales grew 4% currency adjusted, supported by an increase in all formats. On a comparable store basis, own retail sales were up good 5%, on top of the 3% increase in the prior year period. Main driver behind this performance was a strong improvement in conversion rates, partially offset by a slight decline in the average selling price, reflecting the higher share of casualwear in our product mix. From a regional perspective, Asia Pacific recorded the strongest performance with a high single digit comp store sales increase. Comp store sales in the Americas and in Europe grew at a mid single digit rate each. I'm particularly encouraged by the strong performance of our online business, up 41% on a currency adjusted basis in 2018 and with strong double digit improvements across all three regions. Sales in the wholesale channel recorded a robust 5% increase on a currency adjusted basis, supported by mid single digit improvements in both Europe and the Americas. There were, in particular, 2 effects that contributed to the sales development in 2018, which ultimately turned out somewhat higher than initially expected. Firstly, our replenishment business, which allows HUGO BOSS to respond to short term demand from wholesale partners, developed particularly strongly up high single digits on a currency adjusted basis. And secondly, we also recorded a positive effect from the delivery shifts, which led to sales increase in the Q4 of 2018. To conclude on our distribution channels, the licensing business declined 4% on a currency adjusted basis in 2018. Increases in the license income for watches and eyewear were more than offset by declining licenses income from fragrances. The latter mainly reflects the anniversary effect of the change in license partners towards the end of 2016, which yielded double digit increases in 2017. This said, we are clearly not satisfied with the current performance of our fragrance business and have raised this topic vis a vis Coty, our licensing partner. Completing my discussion around the top line development, let's have a look at our brands. And particularly, I'm pleased about the strong performance of our BOSS brand, where sales increased 6% currency adjusted. This development was driven by high single digit growth in both business and casualwear. HUGO, in turn, was negatively impacted by strategic distribution changes aimed at sharpening the brand's positioning. In this context, in 2018, we continued to transfer selling space from HUGO to BOSS at those wholesale accounts where the brand environment speaks more to the BOSS customer rather than the HUGO customer. At the same time, we made further progress in our approach to no longer distribute the brand in some of our BOSS stores and to reduce the presence of HUGO in the outlet channel. All measures combined resulted in an anticipated sales decline down 4% currency adjusted versus the prior year level. Strong double digit growth in casualwear could only partially offset sales decline in businesswear. By gender, our menswear business recorded 5% currency adjusted sales growth, driven by double digit increases in casual and mid single digit growth in businesswear. Sales for our womenswear business declined 3% currency adjusted, reflecting the reduction of selling space with BOSS freestanding stores. This could not be offset by growth for the womenswear of the HUGO brand. Moving below the top line, let's have a look at the development of major P and L items. At 65.2%, the gross margin gross profit margin declined 90 basis points in 2018, in line with our adjusted outlook for the full year. This development was mainly due to the planned investments in product quality in order to upgrade our BOSS casualwear offering. In addition, currency effect had a slightly negative impact on the gross margin development. On the cost side, selling and distribution expenses declined 2%. The slowdown in retail expansion and positive effects from the ongoing renegotiations of rental contracts in the owned retail business were the main drivers for this decline. Administration expenses grew by 4%, reflecting investments in the digital transformation of our business model. There is no doubt that these investments will help us to fully exploit the tremendous opportunities we have identified in digital. The strong double digit increase of our own online business in 2018 is clearly a reflection of our first successes in this regard. At €489,000,000 EBITDA before special items remained on prior year level as guided. Positive impacts from the increase in sales and the tight operating cost management were offset by the aforementioned investments in product quality and in the digital transformation of the business model. Depreciation and amortization amounted to €129,000,000 down 18% on the prior year. This development is mainly due to a slowdown in retail expansion as well as lower impairments for our own retail stores, reflecting the improvement in underlying performance. As a result, EBIT rose by 2% to EUR347,000,000 The group tax rate came in at 30% in 2018 as income taxes were higher than initially anticipated. Expenses related to the recognition of a provision for risk arising for an external tax audit were the main contributor. On the other hand, this 2017 noncash tax expense in connection with a revaluation of deferred tax assets in the U. S. Did not recur. In line with EBIT, net income rose 2% to €236,000,000 If we look at the earnings development by region, Asia Pacific once again stood out, generating a significant margin improvement for the 2nd year in a row. The region segment profit rose 9% in 2018. In addition to the increase in sales, a decline in operating expenses contributed to this development. At 24.2%, the adjusted EBITDA margin was up 120 basis points on the prior year. In Europe, segment profit was up 4% as the increase in sales more than offset slightly higher operating expenses. As a result, the adjusted EBITDA margin increased slightly by 10 basis points to a level of 31.1 In the Americas, operating profit was down 17% due to negative currency effects following the appreciation of the euro versus the U. S. Dollar. These negative currency effects more than offset the positive effects from lower operating expenses. Accordingly, the adjusted EBITDA margin for the Americas was down 3 40 basis points to 17.2 percentage. Now let's move over to the key balance sheet and cash flow items. Starting with inventories, which were 14% currency adjusted above prior year level. Let me be very clear that one of our key priorities for 2019 is to bring inventories down to a normalized level. Compared to the 1st 9 months of the year, the inventory increase has already started to decline, a trend we expect to continue over the course of 2019. Speaking about inventories, let me also reiterate what I had already explained back in November 2018. The vast majority of the inventory position is related to never out of stock products, in other words, product groups that are not related to a specific season. This in turn means that we should be able to normalize inventories sequentially during the course of 2019 without a need to sacrifice gross margin development, just the way we achieved this during the Q4 of 2018. As a result of the inventory increase, trade networking capital grew by 16% on a currency adjusted basis. At 19.7%, the moving average of trade networking capital as a percentage of sales based on the last four quarters was 110 basis points above the prior year level. Investments in our business were once again a key priority in the last year, as Marc explained before. At €155,000,000 capital expenditure rose by €27,000,000 compared to the prior year. The anticipated step up in store renovation as well as continued investments in the IT infrastructure were the main drivers for the increase. With investments of €89,000,000 the group's own retail business was once again the focus of investment activity. Of this, €45,000,000 were spent on store renovation, an increase of 36% compared to last year and reflecting the almost 30 BOSS store renovations in 2018. Investments in store openings remained on the prior year level at €44,000,000 partly due to the planned opening of our new outlets in netting. IT investments rose to €36,000,000 increase of EUR 5,000,000 versus the prior year. These investments mainly focus on the further digitalization of our own retail business and the development of our ERP systems. The increase in working capital and the step up in capital expenditure resulted in the anticipated decline in cash flow. While free cash flow at €170,000,000 was noticeably below the level of 2017, this development was in line with our initial guidance. Finally, net debt only increased marginally to €22,000,000 at the end of 2018. Let me conclude my review of the 2018 financial year by reconfirming our commitment to our dividend policy aimed towards continuity, which we had talked about in detail during our Investor Day back in November. Accordingly, we will propose a dividend per share of €2.70 for the 2018 financial year. This represents a 2% increase compared to the prior year, in line with the increase in net income. At 79%, the payout ratio will remain on the prior year level and thus at the upper very upper end of our dividend payout corridor of between 60% to 80% of consolidated net income. Now let's change perspectives and look ahead into 2019, the first full year within our strategic business plan until 2022. The year 2019 will therefore be all about the execution of our strategic ambition. We expect group sales to grow at a mid single digit percentage rate on a currency adjusted basis, thus outgrowing the global economy as well as the relevant market segment in 2019. All regions are forecasted to contribute towards sales growth with the strongest increase expected to come from Asia Pacific. The region is projected to grow at a mid- to high single digit percentage rates on a currency adjusted basis, led by significant growth in the Chinese market. Europe and the Americas are both forecast to grow at a lowtomidsingledigit percentage rate. From a channel perspective, growth will once again be driven by our own retail business, sales are expected to increase at a mid to high single digit percentage rate on a currency adjusted basis. This forecast is based on the assumption that comp store sales will grow at a mid single digit percentage rate on a currency adjusted basis. In addition, our online business will continue to contribute over proportionate to retail growth. Turning below the top line, The gross margin is expected to increase up to 50 basis points in 2019. This development will be supported by a positive channel mix as the retail business is expected to grow stronger than wholesale. In addition, improvements in markdown management should contribute to the gross margin development. Operating expenses are forecasted to increase moderately. First positive effects from the efficiency program will be largely offset by further digital investments, including the expansion of the concession model as well as the rollout of hugoboss.com website to additional geographies. These investments are not only important to drive further digitization of the business model, but also to further stipulate the positive sales momentum in our online business. Performance, it's forecasted to increase at a high single digit percentage rate and thus stronger than this top line. This development will be driven by the anticipated sales increase, the improvement in gross profit as well as tight operating cost management. In line with EBIT, net income should also increase at a high single digit percentage rate. Moving over to the balance sheet. We expect capital expenditure to increase to a level between €170,000,000 €190,000,000 Our clear priority for investment activity will continue to be our own retail business and IT infrastructure. Alongside the accelerated upgrade of existing BOSS stores to the new store concept, we are also investing in our new state of the art outlet in Netzing, which is expected to open in September 2019. Investments in IT infrastructure will mainly focus on the further strengthening the online business and expanding our digital brand communication and CRM capabilities. As promised back in November, we will continue to put particular emphasis on inventory management as we are committed to bringing down inventories. In this context, 2019 should see a gradual improvement quarter after quarter. This will result in a decline of average trade net working capital by 50 to 100 basis points compared to year end 2018. Consequently, free cash flow is expected to improve significantly to a range between EUR210,000,000 EUR260,000,000 Now before handing back to Marc to look at our operational topics for 2019, let me spend a minute on IFRS 16. From our press release earlier this morning, I'm sure you have noticed that our outlook for 2019 does not include any implications that are expected to occur following the first time adoption of IFRS 16. To make it very clear, the implementation of IFRS 16 will not have an economic impact on HUGO BOSS. It has no effect on the way we run our business nor on total cash flows. It does, however, have a significant impact on our balance sheet. There's also an impact on the P and L as lease expenses are no longer booked as operating expenses, but split into 2 components: firstly, depreciation of the right of use asset and secondly, interest from discounting future lease obligation. IFRS 16 also has an impact on free cash flow as operating lease expenses are no longer treated as operating expenses, and this will, as a result, boost operating cash flow. To be more precise, we expect the following implications to occur during the course of 2019. The increase in total assets on the balance sheet will be between EUR 1,000,000,000 EUR 1,200,000,000 EBIT is expected to increase by a low double digit €1,000,000 amount as the depreciation of the right of use asset will be lower than the previous operating lease expenses. Net income instead is forecasted to decline by a single digit €1,000,000 amount as the sum of depreciation and interest charges is expected to be slightly higher than the previous operating lease expenses. And last but not least, free cash flow is expected to increase by a low triple digit €1,000,000 amount. To ensure comparability between our 2018 actuals and our 2019 outlook, we will report 2019 actuals both, including and excluding the effects from IFRS 16, starting with our reporting for Q1 2019 in May. With this, ladies and gentlemen, let me hand over to Marc to share with you our initiatives for 2019. Thank you, Yves. There's no doubt, ladies and gentlemen, that with the financial outlook presented today, we'll achieve a major milestone towards our midterm financial ambition of growing our business with 5% to 7% top line CAGR and towards achieving a 15% EBIT margin by 2022. But 2019 will be much more than that. Most importantly, 2019 will be a year where we'll make further progress towards our vision of being the most desirable premium fashion and lifestyle brand globally. This is what Anthropathy drives us, and this is what our strategic initiatives in 2019 will be centered on. 2019, our initiatives will once again focus on driving personalization and speed to ultimately enhance the desirability of both BOSS and HUGO. This will be our guiding principle, no matter whether we define our action plan from a brand, distribution or operations perspective. Let me therefore show you some of our operational initiatives for 2019 to further drive brand momentum and excite our customers. Starting with the BOSS fashion show that took place in New York City 3 weeks ago, where both our menswear and womenswear collections for fallwinter 2019 were presented. This time, the gallery district in Chelsea has inspired the design and the creation of the new men's and women's wear looks in the collection. Highlighting the event as BOSS created, the art of sophisticated style was celebrated with fine attention to detail, modern silhouettes and unique materials with artistic highlights. To leverage the content from the fashion show, we put a particular focus on social media, doing the most relevant social media channels. On Instagram, for example, followers had the opportunity to look behind the scenes and to see the runway presentation from multiple perspectives. To drive excitement with our customers, we put an even stronger focus on collaborations in the years to come. Here, I'm particularly proud that we are able to enter into a close collaboration with Porsche in the innovative global motorsport series, Formula E. As part of this collaboration, we will be launching a joint collection incorporating design elements of the first fully electronically powered Porsche Taycan. The high quality collection consists mainly of sport casual sporty casualwear styles and modern tailoring. The collection will be available in selected stores and online later this month. Moving over to HUGO. The brand will continue to play a key role in driving the digital transformation of HUGO BOSS. After successfully introducing the digital collection in 2018, this year, we'll see a further extension of the digitally developed assortment. By year end, we are targeting up to 10% of HUGO's total collection to be developed fully digitally. This compares to 1% in 2018 and is consequently a major milestone towards commercial reality. To drive engagement with the HUGO customers and to create more buzz around the brand, HUGO will return to Berlin this summer to celebrate the brand and the city in a new innovative way. There's more big news around HUGO to come, in particular on the marketing side of things, and we'll talk about it over the course of 2019. So please stay tuned for some exciting announcements later this year. 2019 will, of course, also be a year where we'll make further progress in exploiting online opportunities, starting with our digital flagship hugoboss.com, which will be rolled out to additional geographies, as already mentioned during the Investor Day. In the second half of twenty nineteen, Scandinavia and Ireland, markets with a strong digitally minded customer base will be onboarded to our digital flagship. In addition to our own website, in 2019, we will continue to expand the online concession business by adding new leading online platforms to it. Some of them will be conversions from former wholesale models. Some of them will be new partnerships we are about to enter. And of course, not to forget our partnership with Zalando, where we will be intensifying our collaboration by adding further countries to our partner program. On the brick and mortar side, we will continue to optimize our BOSS store network. We have seen great improvements in retail KPIs for many stores that were either renovated, rightsized or in some cases even relocated. Unsurprisingly, the further optimization of our store network aimed at driving retail productivity will become one of our key priorities in 2019. This will include some of our large flagship stores, such as the one on Champs Elysees to give you just one prominent example. As you know, we are also committed to growing our physical footprint for the HUGO brand. In this context, 2019 will see further store openings across a number of metropolitan centers, among others, Moscow, Hong Kong, Singapore and Los Angeles. The expansion in 2019 and beyond will clearly be of a gradual nature and not to be anything close to an aggressive push to ensure we run the right number of stores in the right areas. We are looking forward to introducing HUGO's mono branded appeal to a larger customer base all over the world. Now ladies and gentlemen, this concludes my operational outlook for 2019. Yves and I are now very happy to take your questions. Just like in previous quarters, we kindly ask you to limit the number of questions to 2, so that all the participants will hopefully have a chance to ask ask Your first question is coming from the line of Antoine Belge from HSBC. Please go ahead. Yes. Hi. It's Antoine Belge at HSBC. Two questions. First of all, at the Capital Market Day, I mean, you had introduced a medium term target of growing between 5% 7% per annum. So mid single digit, I think, in English means between 4% 6%. So any reason why the average growth should be a bit more back end loaded? Or any reason to be a bit cautious this year for some macro reason? And my second question relates to the OpEx development. So I understand that most of the operating margin gains should come from the gross margin. So implicitly, there shouldn't be any OpEx leverage. So maybe could you give a bit of flavor of the different buckets? I understood that there is a cost cutting program in place and so on some digital investment. So maybe what would be the impact positive from the cost savings and then each of the investment that you're targeting? Thanks, Antoine. And let me say, maybe at the beginning, our story we felt for PSG. I mean, it's also a super unfortunate loss in the game, and you know that we are big sponsor of PSG. So we are with you on this one. Let me give you some color on the top line guidance. I mean, for us, the 5% to 7% that we have given as the average growth rate for the 4 years of business plan is covered in our mid single digit perspective for this year. You're right that there are elements from a macro perspective that we take a cautious view and necessary preparation step in the year 2019, which is just beginning. But we would still see our top line guidance for the year 2019 for the full year in the order of magnitude that we guided also in the midterm base. In particular, the Q1, and I think we touched on that one, we see a tough comparison base with a strong like for like we recorded in the Q1 2018 and also the delivery shifts that we've seen in wholesale will be a burden at least the first half year of 'nineteen. So I think we are well advised with the mid single digit top line guidance for 2019. The second question was hello, Antoine. This is Yves speaking. The second question was related to OpEx. So first of all, actually, I want to highlight 2018 that we achieved the bottom line targets by operating leverage because the gross margin decreased by 90 basis points and finally, we achieved our bottom line guidance. So for 2019, we clearly are well ahead of our efficiency program. And on the other hand, we are committed to invest into the digital environment. And I think with our guidance to have a top line improvement mid single and to have EBIT improvement high single digit, We are clearly delivering this what we promised to our Capital Markets Day that we will have an increase in EBIT margin at the end. And what we see with our strategic priorities that we have really found a very prominent recipe to move on and that we as a board have to balance it always between future growth, future sustainable growth and delivering short term profit. Just to give you the right perspective on the investments that we are doing. Clearly, today, we have a high number of 1,000,000 of online sales in the wholesale part, EUR 130,000,000 in the wholesale part is strategically right. Secondly, we are only present today in 12 countries with hugoboss.com. So a lot of bunch of white spots regarding our digital flagship hugoboss.com. And of course, all the store renovations, we know that the store renovations that they have a tremendous impact on net sales and sales productivity. So whenever the rental contracts will be terminated, we will be renewed, then we start our remodeling because it pays off. So these are the investments that we are clearly doing. And by the way, if we are saying that the gross margin will be improved up to 50%, this does not include this does not exclude that we might show operating leverage at the end. Okay. So maybe just on what you said about the Q1. So I understand the impact from wholesale from advanced deliveries. So does it mean that you expect retail like for like in Q1 to be a bit below the mid single digit? And maybe quantify what could be the what has been the running rate in the 1st 2 months of the year? And I'll just ask for Janus and we can't comment any further on Q1 trading. But we all are aware that we experienced a very strong double digit like for like in the U. S. Operation Q1 2018, which as we know will not reoccur due to the onetime effect from the tax cut that was effective, which drove short term customer demand. So it's the toughest quarter to beat from a like for like. It was, I believe, 7% like for like improvement, the strongest quarter in 2018, which is just a matter of fact, a tough comparison base. And we quantified as around €10,000,000 the wholesale shift effect from the Q1 2019 into Q4 2018. Both are burdening the momentum. But as we said, we are strongly convinced on our full year guidance for 2019, and this is what we want to reconfirm also today. Thank you. And also for your sympathy for PSG. Yes. Next year, you're going to be in the final, I'm sure. All right. We move on. Thank you. Your next question is coming from Andreas Inderst, Macquarie. Maybe two questions from my side. The first one, you guide on reported EBIT. What kind of one offs can we plug in for 2019? Is best guess similar €13,000,000 negative impact given all the measures you have assumed? Well, the nature of one offs is a bit that's even for the smartest management team, hard to predict, especially as we discuss this item at the beginning of the first process of Q1. So that's why you will get no further quantification on embedded or implicit onetime items in our 2019 forecast. Given the global structure of our business and complexity of supply chain, there will be clearly onetime restructuring or onetime expenses also embedded. But we think it's the right thing to do with the IFRS 16 changes that Yves explained to you that the business of our scale has to guide on an EBIT number, including also this onetime effect. So we just follow best practice in our industry in this regard, and you can be sure it's a management obligation now to manage the business that we deliver on our results, including some less predictable items, which is the case, like onetime items. Okay. Good. And my second question, maybe you can give us a bit more hints on developments in the U. S. And China and Europe for 2019. What's your market expectations here? So maybe you can particularly on China, you can outline your growth prospects beyond your general comment. Thank you. Well, first, I think that we something we already highlighted at the beginning of the year with our preliminary results that we have seen others to some industry voices that speculated on a slowdown on Greater China. That was not the case for us in the Q4 2018. So we've seen a very robust above group average performance in this part of the world. By the way, also some smaller Asian markets, for example, Japan also showed a very strong result. We are happy without going into much further detail with the Chinese New Year development, which is a clear revenue driver in the Q1 2019. And this is embedded in what Ihorst giving you that we expect an above group average, so high single digit growth on the Asia Pacific region. So it comes from a strong underlying market, which is clearly more favorable than what we see in trading trends in European or North American market. And we expect also this market to benefit from our investment into the digital distribution as we see with upgrading of our collaboration with important partners like Tmall that this will allow us to tap more aggressively into these growth opportunities. Our outlook on Europe and North America is a bit more muted. It will also be on a full year, clearly a growth part of it, but rather on a lowtomidsingledigit basis. As I already mentioned in the question to Antoine, we are especially the U. S. Market is burdened by a very strong like like comparison based on Q1 2018, but that's a single quarter effect. But we do see that the underlying market is clearly more muted compared to the Asia Pacific overall in our industry, and this is reflected in our forecast. Thank you. Thanks, Andre. Thank you. Your next question is coming from the line of John Guy from MainFirst. Please go ahead. Yes, good afternoon. Thanks, Mark and Yves. I just got one clarification and two questions, if that's okay. Just clarification wise on the retail sales densities, I noticed that there was a restatement on your sales densities within the retail business that seem to only move up by €100 to €10,700 and still €800 below where you were back in 2015. So I'm just trying to get a sense, number 1, if that's correct and also how you're thinking about your improvement in productivity going forward into 2019. My question with regards to, I guess, gross margin at the outlook that you set up to 50 basis points and the comments that you've made about progressively reducing your stock levels over the course of the year. And I appreciate that you said that the bulk of what you have stock is effectively never out of stock product. Could you sort of comment on how you see at the moment the moving parts within gross margin because you said that the markdown will be better or better managed going forward. The FX should be slightly positive. You talked about a positive channel mix. There wasn't much of a positive channel mix in 2018. And I guess there will probably be some implied markdown, maybe not that much, given where you're going to take your stock. So I'm just trying to get a of how you look at those moving parts within that up to 50 basis point gross margin. And finally, just on the costs, the selling expenses was obviously very well managed in 2018, just down just under 200 basis points. Marketing was also down by 6% or 60 basis points. So clearly, you're going to be looking to, I would imagine, invest in both of those areas with new store concepts and also pushing your 2 brand strategy going forward. So when you say that there may be some operating leverage coming from the expense line, where is that going to come from? Thanks. Thank you very much, John, for your questions. I will take those questions. First of all, the first question regarding sales productivity. So like we said to you in the Capital Markets Day, we will be clearly focusing on having an CAGR increase of 4% in sales productivity. This is what we are aiming for. Secondly, what we did is and this is what we said to you in Capital Markets Day for the future and this is embedded in those figures that we were showing that you're referring to. We exclude online because we were arguing there is no square meters in online. And thirdly, the improvement of €100, this is true on euro basis. If you take this currency adjusted, it was between 3% 4%. So currency adjusted was actually close to this what we were originally expecting. Coming back to the gross margin guidance, up to 50 basis points for 2019. Clearly, we will see a positive channel mix effect because we will we envisage that retail will outgrow wholesale, and we will see a slight positive effect from less markdown management. And especially if I refer to the Q4, this is what we really achieved in Q4 that we had a very good like for like performance, 4% in retail in Q4 and we even lowered our markdowns, our discounts in Q4 in comparison to the prior year. So having this in mind, this will continue actually in 2019 going further. And so we see improvements in gross margins up to 50% in markdown management. This means less rebates in comparison to 2018 will contribute to this effect. And actually, if you have the guidance in mind, we want to improve actually our free cash flow from €170,000,000 to a range between €210,000,000 and €260,000,000 So this includes actually CapEx, more CapEx that we need in 2019. So you'd see that the dominant part is coming from profit improvement and less inventories. And regarding the marketing expenses, yes, they decreased in 2018 versus 2017, but there was an IFRS 15 change. I'm sorry about all those IFRS changes. But actually, there was a mid single digit million amount that had to be booked as net sales deduction. This refers to the contributions that we are paying for wholesale partners for shop constructions. So in 2017, they were booked as marketing expenses. And in 2018, they were booked as net sales deductions. So I'm sorry about this technical effect, but that led predominantly to the effect that marketing spendings went down. Okay. Thank you very much, Yves. And sorry, just one Just on this fast track that you've got where you're looking to obviously bring product quicker to market and drive a higher full price sell through. Is there any idea have you given any metrics around what the percentage of Fast Track is in terms of sales for 'eighteen and where you're going to take that to 'nineteen? Thanks very much. Well, on the fast track, which is basically something where we reproduce bestseller that we identify early in the season. It's something that we have been doing already for many years. It's, by the way, something both our wholesale and our retail channels are benefiting from that we have in certain categories, be it Jersey or sometimes even in clothing, where we have our own production facility, as you know, in Izmir, that we are able to reproduce items where we see a stronger than anticipated sell through. That's not surely something completely new, but there's clearly a limitation to this part of what we call Fast Track. The far more exciting part that we highlighted in our call today is where we're able now to have a full collection. So a full messaging that we can also use from a marketing perspective, a total look that is fully digitally developed. So all items from sneakers over trousers, jersey, outerwear developed now with lead times which are less than 7 to 8 months, which is a clear reduction of more than 5 months versus previous practice, which allows us to be much closer to the latest fashion trends that we see especially in casualwear. And now with the 4th generation of digital developed collection with HUGO, we have seen now the first time and I think it's an important milestone where the digital developed collection have seen a slight outperformance in productivity, sell through rates and lower markdown than the traditional one. And I think that's still early. As I indicated, we are just starting to grow the overall digital developed part of our collection. But as this proves to be industry. That's why we would like you to focus more on the overall reduction in lead times via digital development process than this fast reaction processes, which are more commonplace, I think, also with other players in our industry. Thank you. Your next question is coming from the line of Jurgen Kolb, Kepler Cheuvreux. Please go ahead. Yes, thank you very much. Two questions. First of all, Marc, you just talked about the digitalization and your speedboat at HUGO. When do you think these experiences, these digital advancements that you've developed at HUGO can be shifted over to BOSS where you have some when will we see some impact here from those advancements? And secondly, on marketing again, sorry, your guidance was always 6% to 7%, given the new IFRS impact. Is that still the run rate or should we more assume that going forward, the marketing expense ratio will Thanks for the question, and you're absolutely right. Thanks for the question, and you're absolutely right. Clearly, we are testing or we have developed first some of the digital capabilities, be it the showroom, be it a fully digital development process with HUGO. But this is spreading quickly throughout the operation. So it's sometimes people working on these efforts that they're working across multiple brand lines. So they're also serving, for example, both men's wear and women's wear in certain product categories. And we started to see already in 2018 that the numbers of physical prototypes also for BOSS is going down. In some areas where traditionally in outerwear, we had 2 or 3 physical prototypes, the teams of the designers, the technical developers have been also moved to new digital tools, which triggered, by the way, also some of the investments that we discussed earlier. But this is now already a technique that is being spread out through the organization. So I'm very confident that even so we haven't quantified it yet, it's probably something we will deep dive as part of our Investor Day 2019, how quickly and how we will transfer the learnings from HUGO in the development process to BOSS. What we can already confirm today that we have initiated the process in 2019, also triggering some investments in 2019 to bring the digital showroom distribution model also to BOSS. So during this the course of this year, we will start with our European showrooms to reduce our salesman samples also for BOSS and predominantly based on the very positive feedback from wholesale buyers, say, using these screens, and I think you have seen it on-site also when we last time we invited you to our headquarter, they say it's a much better tool to curate your buy, your collection you would like to buy from HUGO BOSS with these new tools, and we will bring this in the fiscal year already to BOSS. On the development side for BOSS, we will probably give you more details on our expansion plan the later course of this year. On the marketing question, I would pass on this question to Yves. Yes, Jurgen, regarding the marketing expenses, yes, we stick to our range between 6% to 7% every year. And like we said here in the Capital Markets Day, actually we will grow in line with our net sales development. And in addition to this, like we said, we have a project running regarding marketing effectiveness. We see sometimes having more efficient marketing spendings coming from due to the digitization. But we are saying we will not reduce the number of percentage, but we want to keep this stable in line with the net sales overall. So we won't change our policy here. Very good. Thank you. Thank you, guys. And if you have no further question, good luck for tonight against Interhope. Yes. I was going to mention that exactly. Thank you very much. Thank you. Your next question is coming from the line of Elena Mariani, Morgan Stanley. Please go ahead. Hi, good afternoon. Two questions from me as well. The first one is on your online concession business. I just wanted to understand whether you could quantify the contribution from conversion of your online platforms into concession businesses in your 2019 guidance because there's part of the growth that can be explained by the mechanical transformation of some revenues from wholesale to retail. And in this context, could you help us understand excluding these effects, what is the effective underlying growth that you're year and perhaps a low single digit growth in physical retail. Could you confirm if my calculation is correct? And my second question is on wholesale. I was a bit surprised by your guidance, excluding also these effects from the conversion of into concessions. Wholesale seems to be quite soft in terms of guidance for full year 2019. Can you maybe share some feedback from the retailers on your product launches, on the excitement around HUGO and BOSS? And why not a stronger growth in 2019 coming from this channel on an underlying basis? Rather, please, back on Let me start with the second part of the question, then I will come back to the conversion impact. So we do have some visibility into the wholesale order intake for 2019. And what we do see is a continued strong demand like we've seen in our own ecom business that either it's hybrid models or online pure play are still clearly outgrowing the overall market. So pure play, like ASOS or Zalando, but also others that are wholesale partners of us are clearly growing at a rate above the underlying market. And also our traditional department store that are operating both in physical retail, brick and mortar and online. So I wouldn't say all of them, but everybody really says the e comm part of their business is growing significantly stronger than the e comm part of it. And this is since the vast majority of our about €1,000,000,000 business on wholesale is still driven by brick and mortar In Western Europe and North America, 2 regions which are now benefiting from the stronger underlying momentum that I mentioned earlier in Asia Pacific gives us a reason to be cautious based on the order intake that we have seen that the wholesale business will be rather on the flattish side. And there are clearly 2 effects. 1, I will discuss in a moment, but also the order delivery effect pre delivery effect, which has a dampening effect at least in 2019, all other things equal due to the shipment already in the Q4. The first part of your question has also a negative or dampening effect on the course of development and clearly helps to grow our retail business. However, it's too early to quantify this effect at this point in time. I mean, a lot of these negotiations are still ongoing. They would say what is the switchover date, and we still need to see what is in the full impact of that. I think it makes more sense to highlight that we are making clearly progress to grow this ecom concession business already in 2019. As you know, it is a major growth driver in our 2022 targets to grow ecom to €400,000,000 the vast majority or the biggest part of that comes from digital concession. So we are very happy that we have good negotiations and making good progress to that, but it's too early to quantify this impact to that. So the implicit CAGR of 40% on our ecom business growing from €100,000,000 to €400,000,000 by 2022 is in terms of absolute and relative growth, especially driven by concession. But I would prefer to give you more details on successful completed conversions for every quarterly results. So we will have our next session in May. And then I think we have a better quantitative base to give you an indication on these retail positive effect and the dampening effect on wholesale, which you try to find out. But given that you have a full year 2019 guidance, perhaps can you share with us what's your assumptions underlying? I guess you probably made some calculations. Well, we did. But as for your understanding that we are saying without these concession takeovers, the wholesale numbers would be slightly higher with and clearly and you see the corresponding effect on retail. But please, I ask for your understanding because the moment where I give you the quantitative details to that, I basically lock ourselves in an unnecessary way in to complete these deals, maybe on unfavorable terms because we're committed to a certain sales impact to that. And honestly, I'm not interested in the strongest top line effect to that, but I want the most attractive deal for HUGO BOSS. And this includes for us as a management to have some flexibility to do the right deal and not the one which is implicitly guided in our top line guidance. So please, we run this business for profit and not for a certain channel retail sales target number, and we need the flexibility to take the right decision for the business. Understood. Thank you. And perhaps just one small follow-up about your guidance based on reported EBIT rather than adjusted EBIT. I might have missed part of your earlier answer. But effectively, starting from reported EBIT, you start with with approximately €13,000,000 of extraordinary items negative extraordinary items in 2018. So I mean, are you expecting your underlying guidance growth at the EBIT margin level. Yes. The question I think I'm not sure Andreas asked the question to that. I mean, we have years we have seen significantly higher nonrecurring expenses. Remember that 2016 was an outstanding year, and we are clearly not envisioning something like this to happen in 2019 with the major retail restructuring. We think it's the right way to do, especially not only from the IFRS 16 changes that we explained to you that we give you an EBIT as the best proxy kind for the year. We can't and I will not break out our assumption for the nonrecurring. It could be in the order of magnitude of the previous year, but this is not a budgeted value in its way. But to be clear, like we will be very explicit on the impact on the IFRS 16, is that anything like we had in the Q4 with a certain pension liability that we had to disclose as part of our nonrecurring in the Q4. We will be very explicit, and I think we have a valid track record to be very open to explain to our investors if they are non recurring items, be it positive or negative, we will disclose these items. And this is what we will do, but we can't give you a more explicit guidance details on the EBIT margin 2019. Your next question is coming from Fred Stiefers, UBS. Good afternoon, gentlemen. Thanks for taking my questions. Two questions, please. The first would be on online. You mentioned hugoboss.com was now in 12 markets. Could you give us a sense of what proportion of your total group sales are coming from those 12 markets? And then second question would just be, could you tell us please how you factored FX into your guidance in terms of top line and EBIT in particular? Thank you. Just to make sure that I got your questions right. So the €100,000,000 revenues that we generate in ecom are coming from these 12 markets. And we will probably add 2 more regions or markets. Scandinavia, as we know, opened up nobody from Stockholm is on the phone. So it's clearly more than one market, but the region and the expansion in Ireland will be added to that. So this comes from these e commerce markets. What was this your question? Or did I get you wrong? Or you also asked Sorry, more just a broader sense for the total white space opportunity we're talking about. So the 12 markets that you serve online at the moment, are those can you tell us the proportion of your total group sales they represent? Or maybe to comment it another way, could you tell us what the online proportion of sales in those 12 markets looks like? Well, I mean, one is just to calculate the €100,000,000 of the €2,800,000,000 is the total group share. We would always say, well, you have to look at from a retail perspective. So then it's rather €100,000,000 out of the €1,600,000,000 retail business. If you just look at these market, it varies. So the share is one of the highest penetration we have in the U. K. And the German market, where we are in the double digit share on all our retail sales. The Italian market is still a market where it's at lower penetration. But overall, in the markets where we operate physical brick and mortar and ecom is roughly around high single digit to a low double digit rate percentage rate of our retail business. And Fred, regarding ForEx, overall, we see a very small impact actually regarding from ForEx, which is overall actually neglectable and which is included in our guidance. So we see a very slow €1,000,000 low €1,000,000 amount on the EBIT level as a kind of headwind coming from ForEx. But you know, we're in the beginning of the year, and it's so difficult to predict. So but this includes our guidance. That's very helpful. Thank you. Thank you. Thanks, Brian. Thank you. Your next question is coming from Melanie Flauquet, JPMorgan. Please go ahead. Yes, good afternoon. Thank you for taking my questions. I actually have more than 2, but I'll stick to 2 and 2 boring ones, but that they were big drivers of the financials in quarter 4. I was wondering whether you could help us understand how the tax rate will evolve in 2020. If I understand well your targets, we are still on around 30% in 2019. So where does that normalize starting 2020, please? And the second question is regarding D and A. So I'm sorry, they are a bit boring questions, but clearly you had a lot less impairment test in quarter 4 than you usually have. Is that a new norm, I. E. Ex IFRS 16, we're talking because clearly DNA line will change with IFRS 16. But excluding this, should we expect this line to remain around that level for full year 2019? Or was this an exceptional year in the lower impairment test? Thank you. Yes. Thank you very much, Melanie, for your questions. This is Yves. We expect that the tax rate of 2020 will go down again. So this will be in the range between 26% and 28%. This is what we expect for 2020. And regarding the D and A, this is heavily related actually to our impairments. And there are actually I think it's worthwhile explaining to you why the impairments were going down because impairments on our stores are actually normally extraordinary depreciations that we are doing on our assets in the stores. And there are actually 3 good reasons why the impairments are going down. First of all, we experienced a very good like for like performance from 3% in 2017 to 5% in 2018, so a better performance of the stores. So the logic is the better the stores perform, the less impairments you will have. Secondly, and this is another inherent effect, since there is not such a kind of store expansion to new opening stores, rather remodeling our relocation, this means that the risk is lower for new stores or the investments that we're undertaking, say it being a relocation or being at remodeling. So the better in your language is lower, so less risky. And this comes with the effect that impairments will structurally be lower once we go into this remodeling mode. And thirdly, my board colleague, Bernd, and me being still new, we are much more restrictive regarding store approvals, and this has an effect on the impairment as well. So these are the 3 major drivers why impairments have come down in 2018 significantly. Very, very clear. Thank you very much. Just a clarification, the like for like that you will report moving starting quarter 1 will exclude e commerce? Include. The like for like will include. Will include e commerce. Yes. Okay. Thank you very much. Okay. So they're included in your target as well? Because I thought they were not included in your target. No, they have been always been included in the like No, I know. I thought that 2019 was a change because as you said, you're No, that refers to the sales productivity, I'm sorry. So that refers to the sales productivity and this is related to I'm sorry, I don't want to confuse you, but this relates to sales productivity, clearly relates to the brick and mortar business. Like for like includes online because they are like for like countries that we're doing like for like online business. And we have the same logic for online and brick and mortar, but sales productivity only includes the euros per square meters and not online. That's actually clear. Thank you. Thank you. Well, thanks, Melanie, and thanks for everybody joining us in the call and especially for the time spent with us. So this completes our call for today. We will be reporting back to you on May 2 on our Q1. If there's any question where you which you would like to discuss in more detail with us, our well known members of the Investor Relations team are ready to help you on this one. With this being said, I want to thank you for your participation and wish you a very good day. Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.