Earnings Call: Q1 2018

May 2, 2018

And welcome to the HUGO BOSS First Quarter Results 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Yves Muller, CFO. Please go ahead, sir. Yes. Good afternoon, ladies and gentlemen, and welcome to our first quarter earnings conference call. In the next 15 to 20 minutes, I will present you our most recent financial performance before opening the floor to your questions. HUGO BOSS made a strong start to 2018. In the 1st 3 months of the year, we confirmed the positive sales trend of the previous quarter despite some significant headwinds in the European apparel market. The Americas and Asia were the engine of growth, recording healthy high single digit and low double digit sales increase in currency adjusted terms, respectively. 1st quarter group sales increased by 5%, excluding currency effects. Impacted by the appreciation of the euro against almost all major currencies, revenues remained on the prior year level in reported terms and reached €650,000,000 By region, sales in Europe were up 3% on a currency adjusted basis, despite a deterioration of market conditions in the latest stages of the quarter. Growth was similar across the owned retail and wholesale channels. Overall, the U. K. Continued to outperform the rest of the region and was up 12% in currency adjusted terms, despite a moderation of tourist demand compared to the prior year. The Benelux markets in France also grew solidly, recording sales increase of 7% 2%, respectively. The business in Germany was challenged by the overall weakness of the German apparel market. In addition, the renovation of 2 larger outlet operations had a negative sales impact. Total revenues in Germany declined 5%. In the Americas, business was up 7% on the currency adjusted basis. Sales improved in all markets. In the largest market, the U. S, our business increased 6% on a currency adjusted basis. Double digit growth in own retail more than offset a low single digit sales decline in the wholesale segment. Wholesale sales were impacted by a distribution change at Macy's, where we migrated our business with the former Boss Green and Boss Orange lines to a concession model, which we account for as own retail. In our own retail operations, we benefit from changes in the merchandising of our stores as well as from operational improvements, especially the expansion of our Smart Casual and its Visoware offer to which we have been allocating more retail space over the past 12 months led to significant volume growth. As a result, U. S. Comp store sales improved at a double digit rate in the quarter, also including increases in the online business of more than 50%. Sales in Asia were up 12%, excluding currency effects. The performance was positive across the region. Sales in the key Chinese market increased 11%, driven by continued growth in Mainland China, but also solid double digit increases in Hong Kong and Macau. The 2 letter markets continued the recovery they had already started in the second half of last year. Looking at the other major markets of the region, sales in Japan increased at a double digit rate in currency adjusted terms, supported by strong tourist demand, and Southeast Asia even topped this growth. Group wide own retail sales increased 8% on a currency adjusted basis in the Q1. On a comp store basis, the all retail channel was up 7%, in line with the performance in the final quarter of 2017. As mentioned in my regional comments, the Americas confirmed the strong trend established over the course of the last year and recorded a double digit increase. Asia grew in high single digits and sales in Europe owned retail business advanced at a mid single digit rate on a comp store basis. Unchanged to the pattern in 2017, better conversion rates and higher volumes drove growth. Average selling prices declined in line with our strategy to strengthen our footprint in casual wear and athleisure wear, where selling prices are generally lower compared to formalwear. By retail format, growth was consistent across directly operated stores and outlets. The online business was up 43% in the 1st quarter. In addition to a weak comparison base, growth benefited from the improvement measures implemented last year. In mid March, we also changed the site structure and layout to create 2 distinct brand worlds for BOSS and HUGO, resulting in a clearer differentiation between the two brands, greater visibility of the HUGO brand and better guidance of the user. First indications also point to a steady improvement of conversion rates since that change. As a result, we are confident to generate strong growth in our online business also going forward. Beyond the further enhancement of digital presence, we have also progressed with the integration of omnichannel elements in physical stores, a key consideration in the development of our new store concept. The new concept was used in key stores that we opened and renovated in the Q1. Our new store in Mexico City was the most prominent new opening in the Q1. The picture on this slide show our storefront in the King of Prussia Mall in Philadelphia, where we moved to a better, more central location. Renovations in the quarter included our BOSS store and Copley Place in Boston, which reopened in February. We will also start opening the first new HUGO stores in the next few months. Key locations will include Amsterdam, where we will cut off a part of the BOSS store and dedicated to HUGO and London. Turning to the wholesale channel. 1st quarter sales were up 1% on a currency adjusted basis. The low single digit decline in the Americas was more than compensated by a moderate increase in the European wholesale business. Within our global wholesale business, online clearly outperformed the physical channel, while our business with large marketplaces and the online platforms of leading department stores grew at double digit rates, sales with stationary retailers were down in the light of the pressure they are facing from ongoing traffic declines. Finally, sales in the license business were down 1% in the quarter, reflecting the anniversary of the takeover of our fragrance license by Coty, but also timing effects, which will reverse in further course of the year. New product innovations, such as the BOSS United fragrance, extension of the BOSS bottle family that will launch shortly before the kickoff of the Football World Cup in summer and the launch of a new campaign for our blockbuster fragrance, The Scent, will ensure solid growth in the business in the remainder of the year. Sales in the total BOSS businesses increased 7%, excluding currency effects in the Q1. The performance was particularly strong in casualwear. This part of the collection has clearly benefited from the quality investments we made in the springsummer 2018 collection. The upgrade of the former BOSS Orange offering also means that we are giving more space to it in our stores now. HUGO sales declined 6% in currency adjusted terms. The brand's casualwear business continued to grow at double digit rates, above all, building on the success of the reverse logo theme that has opened up new customer groups for the brand. However, as expected, distribution changes are having net worth impact on HUGO sales in 2018. These changes relate to some spaces in department stores, which HUGO is giving up in favor of BOSS because its brand proposition is a benefit with the customer. We are also reducing HUGO's exposure to the outlet channel and are taking it out of BOSS stores to ensure that it's distinctively positioned. We are convinced that this distribution alignment is necessary to sharpen HUGO's fashion forward contemporary proposition. By gender, the 6% growth of our menswear business was driven by improvements in the collection, growing brand desirability and, to a lesser extent, the addition of retail floor space. The latter came at the expense of our womenswear business, which declined 3% in currency adjusted terms. Womenswear sales in the wholesale channel, however, were up, reflecting healthy demand from retail partners, in particular in Europe, where BOSS holds a leading position also in this market segment. Turning below the top line. The gross profit margin declined by 40 basis points to 60.0 in the 1st quarter. This was due to the quality investments I mentioned earlier. The growing share of own retail in our sales mix only partly mitigated this effect. All other factors were broadly margin neutral. We also made further progress in the management of our operating expense base, although exchange rate effects clearly had a positive impact Q2. The lower pace of space expansion, the successful renegotiation of rental contracts and the closure of unprofitable stores completed at the end of 2017 helped keeping own retail costs broadly stable. In addition, some phasing effect in our marketing budget as well as the reclassification of certain costs because of an IFRS change also contributed to the 4% decline of selling and distribution expenses. In contrast, G and A expenses were up 2%, reflecting further investments in the digital transformation of our business model. As a result of the operating expense decline, 1st quarter EBITDA before special items increased 1% compared to the prior year quarter amounting to €99,000,000 As we had guided at the time of our analyst conference in March, negative currency translation effects held back profit growth. In the Q1, we incurred around half of the €10,000,000 impact we forecast for the full year. This was in line with our original expectations. Mainly driven by a lower D and A charge following the decline in investments in 2017, EBIT was up 8% in the 1st 3 months of the year. Despite a higher tax rate, net income was still up 3% amounted to €50,000,000 From a regional perspective, the slight sales growth in Europe was not enough to offset operating expense inflation, so that the regional margin declined by 120 basis points to 29.6%. In the Americas, the margin dropped to 10.1%, was largely caused by negative currency translation effects, which were related to the weakness of the U. S. Dollar compared to the prior year period. Exchange rate effects played a role in Asia, too. However, strong sales growth and strict cost discipline more than offset the impact, leading to a margin expansion of 2 70 basis points. At 28%, profitability in Asia is now close to European levels again. Let me also give you some more color on key balance sheet items and cash flow performance. At the end of March, inventories were up 5% in euro terms and 11%, excluding currency effects, reflecting an increase in our own retail buy to make sure we minimize stock outs and exploit additional sales opportunities. Overall trade net working capital grew 3% on a currency adjusted basis. Nonetheless, the rolling 12 month average of trade net working capital over sales declined to 18.5%, 130 basis points below the prior year level. Capital expenditure decreased 23% in the 1st 3 months due to a different phasing compared to the prior year. The timing of renovation projects, the main area of investments in 2018, will focus on the period between April October. In addition, investments in own retail declined due to a lower number of new store openings. IT investments, however, were up compared to the previous year. Because of the increase of trade net working capital, free cash flow amounted to a negative €47,000,000 in a quarter that is traditionally small from a free cash flow perspective. Nonetheless, net debt still halved at low absolute level, reflecting the strong cash generation rating over the last 12 months. Ladies and gentlemen, the results of the Q1 were in line with our expectations set out in March. As a result, we are confirming our full year expectations today. Group sales growth is set to accelerate to a lowtomidsingledigitincrease, excluding currency impacts in 2018. All regions are expected to contribute. By distribution channel, we stick to our forecast of a mid single digit comp store sales growth in owned retail despite the better performance in the Q1. This outlook incorporates the effects from an increasingly tougher comparison base in the further course of the year. In the absence of any material net impact from store openings and closures, total own retail sales should increase at the same mid single digit rate too. We are also forecasting low single digit currency The group's gross margin is expected to remain broadly stable in 2018. Positive channel mix effects and lower discounts in own retail should contribute positively. These benefits will be offset by an upgrade of the value proposition of our collections, including a double digit €1,000,000 investment in product quality. Considering this investment and some currency translation effects, gross margin development is likely to be negative also in the full first half year before improving in the remainder of 2018. Considering also tight operating expense management, EBITDA before special items is expected to perform within the range of minus 2% to plus 2%, including the aforementioned negative currency impact of around €10,000,000 Net income growth will be higher, supported by lower depreciation charge as well as the normalization of the group's tax rate to leverage around 26% in 2018. Investments will increase to between €170,000,000 €190,000,000 largely reflecting the step up in store renovations in 2018. These investments and higher working capital needs will also affect free cash flow generation. In line with our guidance issued in March, we expect free cash flow to amount to between €100,000,000 €200,000,000 Ladies and gentlemen, HUGO BOSS had a good start to 2018. Sales increased on a broad base. That means across all geographies and in both own retail and wholesale. Where we were still unsure about the acceptance of our collection changes at the same time last year, we can now report back on a strong reception by end consumers as indicated by the current levels of growth in own retail. I acknowledge that these improvements come with ongoing investments that limit profit growth in 2018. However, the top line momentum that we have generated also proves that the investments in product quality and the desirability of our brands and the quality of our retail execution online and offline are paying off. We are committed to building on the progress we have made. We will update you on our plans for the return to profitable growth 19 beyond at an Investor Day, which we will be hosting on Thursday, November 15, in London. Please save the date in your calendars. We look forward to welcome you at the event. But before looking out too far in the future, let me now answer your questions on today's set of results. We will now take our first question from Fred Sears of UBS. Please go ahead. Your line is open. Hi, good afternoon. Three questions for me, please. The first would be on Europe. I'd like to understand how much like for like was impacted by the bad weather in March. I wondered if you could give us a sense of how much weaker March was compared to January February? And also have you seen a reacceleration in Europe in April? And second question was around the operating cost phasing. It sounds like marketing spend was down a bit in Q1. How should we think about the phasing of marketing costs through the balance of the year? And can you confirm your underlying cost assumptions for the full year unchanged? And last one would be on the gross margin. You talked about the negative development we should expect in H1, which implies H2 up, of course. What are the main factors that drive the expectation for gross margin to improve in the second half? Is it more a bigger impact coming from lower rebates in the second half? Or is it perhaps phasing of product quality investments? Thank you. Mr. Spears, thank you very much for your questions. First of all, you were touching Europe. Yes, indeed, we had some we had less growth in March in comparison to January, February due to the weather conditions. Yes, and that's it. Actually, we don't give any forecast regarding the current performance in the course of the year. I hope you will respect this. The second question was relating to operating cost items. Yes, I can somehow confirm that we will have the full year effect of our costs. And yes, we had some cost savings in the Q1. And those cost savings were coming from some phasing effects from onethree, if you touch to marketing expenses. The other third is coming from the lower marketing expenses coming from marketing efficiency. And the last onethree is coming from an IFRS change since investments into store furniture are now not recorded anymore as marketing expenses, but as net sales reductions. Coming to gross margin, we're touching the second half of the year. Overall, it will be improving because of channel mix effects, lower discounts, so it means lower retail rebates in our own retail channels. And as well, we expect for the second half that we don't have this headwind from currency, as I pointed out. Thank you. Maybe just coming back to that Europe question. I suppose could you at least confirm if March was positive for Europe like for like? Yes. March was in the mid single digit positive. Thank you very much. We will now take our next question from Antoine Belgy of HSBC. Please go ahead. Yes. Hi, good afternoon. It's Antoine Belgya of HSBC. Three questions, please. First of all, regarding your online performance, quite strong, but if we look at the run rate, close to 50% was pretty similar to what we had in Q4 was the basis of comparison, what was much easier. So maybe some comment around online. Second question, you're investing you invested quite a lot in terms of in the products, especially in quality and sometimes actually reducing the price. So could we have an idea of the impact on volume and maybe also the impact on price mix of those initiatives? And thirdly, with regards to the U. S. Market, what's the latest what are the latest development regarding your relationship with key accounts in department stores? Thank you. Thank you very much, Mr. Berge, for your questions. Coming back to question number 1, the online performance. Overall, you are right that we had a lower comparison base in the Q4 'seventeen and then the Q1 in 'eighteen. So in the Q1 in 'eighteen, I repeat, we recorded an increase of 43% in comparison to the prior year. We still we are still very confident that we will achieve over the whole year double digit growth rates, and we see really positive momentum. And I can ensure you that I will be focusing on this online development because this is very crucial in the further course of HUGO BOSS for HUGO BOSS. Secondly, the investments in product quality. I think the investments in product really paid off. We did this investment in product quality primarily in the casual wear, and casual really picked up double digit and for double digit growth in the Q1. So we are very much convinced that we did the right in order to position the former BOSS Orange in the new BOSS casualwear positioning. Overall, I can confirm that the volume growth overall overcompensated the small price decline. And I think this is what we expected since we are seeing higher conversion rate in our own stores, and this is well received by the customers. And so I'm positive about this because the customer base is growing going forward. Coming back to the U. S. Market, we see overall a very split situation. We had regarding some department stores, a good development and some had not a good development or was decreasing to prior year. So it was a mixed feeling. Overall, the wholesale business was a slight decline, but I want to point out that we have one effect at Macy's because we changed the wholesale business model to concession. And now in this concession model, especially at Macy's, where we have casual wear and athleisure wear now under our own product and price control. Maybe just a quick follow-up on that. When you look at your fall and winter, when you look at the next season orders in the U. S, I mean, are you seeing a sequential improvement? And back to what you just said about Macy's, so I mean that there is a negative effect in the wholesale line and then a slight positive effect in the contribution new stores. Is that correct? Yes, that's correct, yes. So there's an underlying effect that wholesale, because we don't show the net sales any longer for casual wear and athleisure wear for Macy's under wholesale. We will show them under shop in shop under directly operating stores. So this is a kind of basis effect. But I want to point out that without this effect, the underlying performance in the wholesale market in the U. S. In the Q1 was stable. Okay. And with regards to the next season, maybe potentially showing a better outlook compared to the current season in the especially specifically with U. S. Department stores? Overall, the fallwinter collection has been very good received by our customers, and there was a slight increase in comparison to springsummer 2018. So fallwinter had a positive development. We will now take our next question from Edouard Uben of Morgan Stanley. On your free cash flow, the negative €47,000,000 evolution in Q1, I think in Q4 2017, you had a positive impact of €20,000,000 due to the timing effect of some trade payable. Was there a reversal in the Q1, which would explain the negative figure in the Q1? And in terms of your inventory, should we be worried about higher markdown risk due to the increase? Or is that basically just exactly in line with what you had budgeted? And finally, on just to come back, sorry, on the gross margin guidance for the Q2, you said the evolution would be negative in the Q2. Should we assume the same magnitude than in the Q1 around 40 basis points? Would that be First, regarding the cash flow. We had a decline in the Q1 of 47 €1,000,000 And yes, there was one timing effect, and this reversed now in the Q1. We were pointing out a €20,000,000 last time, and this is this can be somehow confirmed. On the other hand, we saw that we had an increase in inventories that you just mentioned, and this led somehow to the negative cash flow as well. Your second question was related to the inventory increase. Overall, this inventory increase was expected, and this was mainly due to the retail buy that we are having in order to support sales in the further course of the year. Regarding gross margin, actually, it's too early to call. What we always said is that due to the headwinds of the euro, we will see some effect in the Q2, which will be reversed overall. Overall, we are confirming that the gross margin for 2018 will remain on the same level than in 2017, and there are some different effects, but the rebates and the channel mix effect cannot be now confirmed because May June is still open. From a tendency wide, we want to limit the discounts. So we want to shorten the sales periods, and this will apply to the June results in own retail business. Okay. Thank you. We will now take our next question from Thomas Chauvet of Citi. Please go ahead. Your line is open. Good afternoon. I have two questions, please. The first one on HUGO. I guess the negative performance was in line with your expectations, given you're cleaning up wholesale and closing some outlets. Can you possibly quantify the impact of these closures? And how long are you expecting that disruption to continue for? On YUGO still, if you could provide maybe just retail LFL for the brand in the period? Secondly, on the retail network, your store count is down by about 30 units net or that's about 3% year on year, but contribution from space seems to be plus 1. Can you give a bit more color on that and remind us the plan for gross openings and closure for the remainder of the year? Thank you. Okay. Thank you very much. I don't know if I get your second question right. You were asking about some more insight regarding openings and closures, right? Well, your retail LFLOP 7 in the period, and I want to know whether where the space contribution came from, given you're starting to have a quite negative now evolution of your store network. So network was down 3% year on year, but you had still a positive impact from new space. So I was just wondering, wanted a bit more color on that. And then yes, the gross opening and closures for the rest of the year. So perhaps starting with the second question, the opening and closures. I think overall, there will be no major changes regarding opening and closures, and the overall sales distribution will remain overall the same, and there will be no major space expansion in course of the year. So what we are doing is we are really focusing on sales density and sales productivity. This is what we are doing. And besides this, there will be some store optimizations here and there are some relocations and more optimization of the store portfolio. But overall, there will be no space expansion. There will be rather we will be focusing on productivity. Regarding HUGO and the performance, we recorded negative sales development of minus 6%. This is actually what we have expected, as I pointed out, because we want to limit overall the distribution in the outlet channel. And actually, when we have now we have to on the distribution side, we have to fulfill and execute our strategy to say we have 2 different brands, BOSS on the one side and HUGO on the other side. And so still there are some stores which have both BOSS and HUGO. And so we get HUGO out of the BOSS stores in order to have a clear proposition to the consumer, and we are doing this in course of the year. So what I expect is that these distribution changes will be accomplished at the end of the year. And in addition to this, what we are doing is that we are opening new HUGO stores, as I mentioned, in Amsterdam and in London, where we are piloting our new HUGO concept. Just to clarify, so you're expecting that disruption, that level of disruption to continue until Q4 for you to go? During the course of the year. Overall, what I'm saying is that we will continue with this distribution changes during in the course of the year. Sure. But when does that stop? I mean, when are you going to basically when is that disruption going to end? When is your distribution change plan, Eddy? The distribution change will end at 2018, end of 2018. So you're expecting disruption throughout the year basically? Yes. Okay. What were the like for like for future growth in the period? Overall, the like for like has been slightly positive. So if you take these, the underlying was slightly positive if you take these distribution channels out. Thank you. We will now take our next question from John Guy of MainFirst. Please go ahead. Thanks, Yves. I've got two questions. Thanks. Just on the IFRS 15 accounting treatment of marketing spend, what was the €1,000,000 reduction to marketing spend in the Q1? Was it around the mid single digit to high single digit €1,000,000 That's my first question. And sticking with marketing, you've moved from Formula 1 to Formula E sponsorship. And I think with that, there's a seasonality and timing effect on marketing, I think, from 1Q and 3Q to 2Q and 4Q, respectively. So what I wanted to know is whether or not the overall budget, first of all, has changed with the change in sponsorship and if so, by how much? Thank you. Okay. Thank you for your question. Regarding the marketing expenses, it has been overall a mid single digit euro amount. And as I said, there have been 3 effects. 1 is the IFRS 15 change, which covers onethree of the change. The other onethree is marketing efficiency because I see efficiencies in the marketing that we are spending. And the other one third is going to marketing shifts. And this relates to your second question. This goes to Formula E because you're right, we are starting in Q2. And this is predominantly the effect of this phasing or shifting expenses. Okay, great. But the absolute amount of marketing question of timing. Actually, it's going a little bit down. We will now take our next question from Volker Bose of Baader Bank. Please go ahead. Hello. Volker Bose of Baader Bank. Three questions. First, could you please provide us with an update on your process in introducing multichannel services on a global basis? So where do we stand and what is still to come in the course of this year? And the second question would be on your online concessions business model. As you stated earlier, you want to roll out that. So also here perhaps an update what is done and what is to be ex can be expected for the rest of the year. And finally, on the margins in Americas, margins declined. Could you give us the background here as you put out of the discounting department stores, but how do you see the development here and what's the background? Thanks. Yes. Thank you very much. Coming to your first question. So what we are really doing is we are in cause of the rollout of our omnichannel services. This means click and collect and order from store. And what we did in the Q1 that we rolled it out to Belgium and Italy. So we have some basis effect there into European countries. And in addition to this, we will have order from store in the Q4 in the United States, the big market where we have a big retail space. So we have we will then connect online in our retail owned stores. So this will happen in the Q4 of 2018. Coming to online concessions, we are making great progress there overall. We have already some department stores in Europe, especially in the Netherlands and in Denmark. We converted the model from wholesale to concession model. And we are in recent negotiations, as I told you, in analyst conference, and we're making big progress there. And regarding the margins decline, actually, our margin was not affected by the discontinuation of our U. S. Wholesale. This was deliberately done. And as you can see, with our own U. S. Retail performance growing double digit, we see that this is the right way to improve our U. S. Business. And actually, the margin decline on an EBITDA basis is predominantly coming from the translation effect from the U. S. Dollar to euro currencies. Okay, got it. Thank you very much. All the best. Thank you. Thank you. We will now take our next question from Marc Josephson of Equinet. Please go ahead. Yes, indeed. Thank you. I wanted to explore the German sales decline 5% in Q1 a bit more. How did that vary between the wholesale and retail? In your prepared remarks, Yves, you mentioned some space closures at retail, which impacted that. But what was the performance retail versus wholesale in Germany, please? Yes. Overall, the sales decline was minus 5%, as I reported. And actually, the wholesale performance was in line actually with the retail performance. There were no big differences. And on the like for like performance, we had a low single digit negative performance, but the retail like for like was better than minus 5%. Got it. Okay. Okay. Thank you. We will now take our next question from Warwick O'Kane of Deutsche Bank. Please go ahead. Good afternoon. I've got three quick questions, please. Firstly, in your prepared remarks, you said that market conditions had deteriorated at the end of the quarter in Europe. I just wanted to check that was purely a weather comment rather than anything else. Secondly, returning to Macy's and the conversion to shop in shops, how many units did you do? And when did that happen? I'm just wondering whether that's an effect that will continue all the way through the year. And thirdly, could you give some sense of when you think the license performance will return to the more what's the mid single digit growth that you've guided for the year? Just trying to understand how the timing effects will phase through the year? Thank you. So thank you very much for your questions, Moric. So one is I talked about the market deterioration, And you asked me whether this was a weather comment or not, and I can say yes overall. Secondly, you touched Macy's. We will see this effect, yes, throughout the year. And we talk about there about 30 to 40 doors overall at Macy's. It has been converted. And regarding the license business, we will see some positive effects, some small positive effects in Q2, but it will move on further in the second half of the year in order to achieve our guidance of mid single digit growth. We will now take our next question from Jurgen Kolb of Kepler Cheuvreux. Please go ahead. First of all, on your conversion rate, you said that the conversion rate improved. I would assume that's both online and in the physical stores, if you could maybe confirm that. Secondly, the like for like growth, which obviously was very strong and impressive, could we have that maybe excluding the online business, how that performed? And thirdly, the retailer's feedback on your springsummer collection, but also on the fallwinter collection? You mentioned that there is a good feedback for the fallwinter collection. Now given that your own stores performed so strongly, wouldn't you have expected maybe an even stronger feedback or order process from the retailers because as it looks your collections are selling well. So that should be a very strong statement then also for the retailers to order both HUGO, but also BOSS. Thank you very much. Thank you, Mr. Kolb. So regarding conversion rate, so our store conversion rate improved by high single digit growth rates. And the conversion rate improvement online are even double digit, especially when it comes to the new site, the new structure of our site that we have launched in the middle of March. So this is one effect. So then you were talking about the like for like performance without online and the like for like performance in directly operated stores, which includes freestanding stores and shop in shop, they increased like for like by 5%. And then when it comes to the collection, yes, we are optimistic about the order intakes. We know the order intakes and we know that they were better than the springsummer collection. So we will see now what we are seeing now is already the next big order intake in the summer in the second half in the second quarter of the year for the springsummer collection 2019. So we see overall a very positive development, and we will update you in August about this development. Very good. And also the sell through that you've heard from retailers with respect especially to the HUGO brand, but also the BOSS brand was throughout the picture positive? Or have you heard anything or what maybe leads you to change anything on the collection side? No. We have received positive signs. We will now take our next question from Melanie Flauquet of JPMorgan. Please go ahead. Yes, good afternoon. Thank you for taking my questions. My first question is if I can come back to casual wear versus formal wear. Casual wear appears to have accelerated in quarter 1. And I was wondering whether you could share with us whether this is mainly due to space allocation. So to what degree is Casual Warehouse outperforming its higher space allocation since Q1? My second question is on mine. Sorry, if I look at the 2 year stack going back to Antoine's question, online is up 16% when it was up a lot more in quarter 4 on a 2 year basis. What did you do differently that may have hampered somewhat the growth in online? And what can you do to reaccelerate it moving forward? My next question is on inventories. You are guiding for like for like on a full year basis that is actually a bit more muted than the growth that you achieved in quarter 1. Your inventories are up 11%, so actually up quite markedly. Why are you comfortable that these will carry limited markdown risk? And then, sorry, my last question is a bit more boring. It's relating to the depreciation charge, down 13% depreciation and amortization, down 13% year on year in Q1. Is this the degree to which we should expect it to be down on a full year basis? And what about next year? Do we go back up because CapEx go back up in 'eighteen? Thank you. Thank you, Melanie, for your questions. Regarding casualwear, we as I pointed out, we had a double digit increase. And I would say we had half of this increase was coming from space allocation and was and the other half was actually the underlying performance. When it comes to online, we are very satisfied with the performance we had. We are well in line of our expectations, and we are well above our guidance so far regarding online, and I think we will maintain this in the course of the year. Regarding depreciation charge, yes, overall, it will go down overall, but not at the same amount that we have seen in the Q1 of this year. But overall, I see some positive effects as well as from more, I would call it, capital efficiencies because the shop construction, there are still some efficiency potential to when it comes to construction costs of new openings and especially when it comes to remodeling costs. And the inventories, yes, they were up 11%. Right now, I don't have the concerns so far when I see the underlying performance. And the markdown has been well under control in the Q1 of the year. But is there anything that you did differently online? Sorry to go back in Q1 because I appreciate you're satisfied, but I suspect you were facing minus 27%. So this is a 16% growth over 2 years, 8% per annum. I mean, that's not striking me as a very high growth. We did what we did in the Q1 of this year, we strained we changed the structure of our site. So we had some limit promotions during the course of this period of 4 weeks. So actually, we operated online with lower discounts, and this was what we expected. So I we overall grew our customer base. And overall, we see good development in online. We will now take our next question from Peril Dardana of ARB Capital Markets. Please go ahead. Yes, thanks. It's Piral here from RBC. Most of my questions have been answered, but could I please just follow-up on your casual versus formalwear? Could you please provide a bit more color on the formalwear business and the trajectory for 2018? I appreciate that you're allocating less space to the category, but just in terms of your expectations as we progress throughout the year. My second question is on potential benefits from poor weather in relation to your outerwear business. I appreciate that selling conditions were difficult in March, But did you see any pickup in sales to your outerwear categories? And could you just remind us how much of the mix that is for the brand? And then finally, just in terms of traffic, I think you've spoken a lot about conversion and ASP, but could you give us an indication of what the traffic trends were both for your physical retail stores and your online stores? Thanks a lot. Thank you very much for your questions. I start with the last questions regarding the traffic and the trends. So regarding off line, our brick and mortar business, we had a slight increase in traffic overall at a low single digit increase in visitors in our stores. And regarding online, we had a double digit increase with our visitors in our online stores. Regarding the potential of selling of outerwear, I have to come back to you later on. Perhaps this is okay for you just to give you the amount. But overall, this has had really a small effect in March because it was so cold in Europe. So it's actually overall, it's neglectable. I heard from our sales guys that we sold, of course, more outerwear in this period, but it's overall, it's negligible. But if you like, we can come back to you after the Q and A. And regarding casualwear and formalwear, yes, overall, we stick to our guidance, and we see double digit growth in casualwear overall and a low single digit increase in Formalwear overall in the course of the year. Okay, great. Thanks, Yves. Could I maybe follow-up with one short question? Have you seen any changes in your demographics? And could you maybe give us an update on the CRM activities that you're conducting online and offline? Obviously, with the growth rates you're seeing in casual wear, are you seeing any trend downwards in your in the average age? And maybe any update on your CRM initiatives? Yes, I can confirm that due to the CRM and our customer base regarding the increase in online And overall, due to the offering of casualwear, we see some trends that the customer base is getting slightly younger. This concludes today's question and answer session. So I would now like to turn the conference over to Yves Muller for any additional or closing remarks. Yes. Before closing today's call, let me take the opportunity of this last analyst conference call at HUGO BOSS to thank my colleague, Dennis Weber, for his work and dedication to the company in the past 8 years. In his role of Head of Investor Relations, he has been your key point of contact and support and vice versa, he was instrumental in feeding your views, expectations, concerns into the company in order to enable an informed decision making. On behalf of my Board colleagues as well, I wish him all the best in his new role at Deutsche Lufthansa in Frankfurt. A blouse. And at the same time, I'm excited that Christian Stoehr will join our group. Many of you will know Christian from Adidas, where he has gained excellent industry knowledge. I will look forward to having him here in a month from now. Over the course of June, he will work closely with Dennis and the existing team to ensure smooth transfer of responsibilities. So many thanks for listening in and goodbye for today. Bye bye. Thank you. This does conclude the HUGO BOSS 1st quarter results 2018 conference call. We thank you for your participation today. You may