Earnings Call: Q3 2016

Nov 2, 2016

Good day, and welcome to the HUGO BOST 9 Months Results 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Langer, CEO. Please go ahead, sir. Thank you very much, and good afternoon, ladies and gentlemen, and welcome to our 9 month 2016 financial results presentation. HUGO BOSS continues to operate in a challenging market environment. In Europe, in particular, trends in the premium apparel industry continued to soften. The U. S. Market remained under pressure and highly promotional. And while the Chinese mainland has started recovering somewhat, other Asian markets still face considerable challenges industry wide. Affected by this difficult market backdrop, group sales were down 4% in euro terms or 2% on a currency adjusted basis in the 1st 9 months. In the light of the top line challenges, we tightened our grip on cost management. The expansion of our savings program limited the decline of operating profit. EBITDA before special items was 18% below prior year's level in the period. Taking into consideration a negative shift effect in our wholesale business as well, 3rd quarter revenues declined by 3% year over year, excluding currency effects. Operating profit was 14% lower in the quarter. In Europe, performance weakened in the last 3 months. 3rd quarter revenues were down 2%. We attribute this to the following factors. 1st, we suffered from weak demand in August September, in particular in key European markets such as Germany, France and Spain. This was a reflection of overall market deterioration. In Germany, for example, market researcher GSK described the industry's most recent performance as almost historically weak. 2nd, tourism has turned from a significant tailwind in 2015 into a headwind in 2016. The U. K. Market is the only exception in this regard. However, with just a low double digit share of our business there generated with tourists, the demand increase related to the pound devaluation only had a limited effect on our business. And third, the region's wholesale business suffered from negative timing effects in the quarter. In contrast, the 2nd quarter benefited from the fact that many retail partners had put a greater weight on the early themes of the fall collection delivered in May June already. On a year to date basis though, the European market continued growing. By geography, the U. K. Was the region's fastest expanding core market. In the 1st 9 months, sales were up 8% on a currency adjusted basis. However, sales in Germany, France and the Benelux market all declined at mid- to high single digit rates. 9 month revenues in the Americas were 10% below the prior year period, excluding currency effects. This was due to the U. S. Business, which was down 17% year to date. Solid growth in Canada as well as Central and South America was not enough to offset weakness in the region's main market. In the U. S, declines were driven by the wholesale channel. In this channel, year to date sales are down 24% year over year. Around half of the decline is due to our conscious decision to exit distribution formats not in line with the positioning of our brands. Specifically, we have sharply reduced the volume of off price business. This includes a discontinuation of business relationships with value retailers, but also the rightsizing of brand presence in department stores off price concepts. We are confident that this quality upgrade of wholesale distribution will contribute to brand strength and desirability going forward, ultimately also benefiting trading in our own stores. At this stage, however, sales in own retail continued to be under pressure from the diversion of customer traffic into multi brand formats, which compete almost exclusively on price. Underlying retail trends were somewhat better in the Q3 compared to earlier in the year. However, this was largely due to an easing of the comparison base rather than a fundamental trend change. Finally, sales in Asia Pacific recorded a 5% decrease in currency adjusted terms in the 1st 9 months. In the Q3, however, performance improved sequentially. This was entirely due to China, where sales declines moderated to just 4% in the 3 month period. This represents a major improvement, considering that we have reduced prices substantially and our store base has shrunk by 12 locations since the beginning of the year, including 17 store closures on the Chinese mainland. In addition, Hong Kong and Macau, which account for around 1 fourth of total China sales, continue to record declines and drag down the overall market. On the Mainland alone, however, comp store performance was positive again in the 3rd quarter with strong improvements in August September in particular. This compares to still high single digit negative rates in the first half year. We attribute this success to 4 major factors. 1st, we benefited from the adjustments we made to our pricing and merchandising strategy. On the new lower price levels, we broadened our offering at accessible entry price points on the one hand. On the other hand, we created exciting assortments by emphasizing high end concepts such as our BOSS tailored range or full canvas seats. 2nd, we improved merchandise planning and in season management, avoiding stock out situation such as the ones we suffered from in the first half year. 3rd, innovative marketing concepts, in particular in digital, supported brand momentum and customer engagement. And 4th and finally, a gradual recovery of the Chinese premium and luxury menswear apparel market after 2 years of double digit declines provided some tailwind. Based on these factors, we are confident to sustain the positive momentum also in the months ahead. By distribution channel, group owned retail sales were up slightly in the 1st 9 months. This was primarily due to the contribution from expansion and takeover activity in the prior year. Keep in mind that stores opened last year will only become part of the like for like universe in 2017. On a comparable store basis, revenues declined by 7%. In the 3rd quarter, comp store sales performance improved gradually to a negative 6%. However, all regions continued to perform in negative territory. Europe and also Asia Pacific performed better than group average, while trends in the Americas remained subdued. Traffic declines continued to be a major drag of performance here. Disappointingly, our online business had a negative impact on comp store sales as well. It was down 8% in the 1st 9 months, including a mid teens decline in the Q3. As we have flagged at our last results presentation already, the steep increase of traffic coming from mobile devices is having a negative impact on sales performance at the moment as it dilutes conversion rates. We are addressing this in multiple ways. Most importantly, we focus on improving the mobile website checkout funnel, where we lose far too many customers at the moment. In October, we also launched a mobile app where the checkout process is easier compared to the mobile site. Finally, at the beginning of October as well, we relaunched hugobus.com with a goal of improving usability on mobile devices in particular. In addition, we have made obvious progress when it comes to the look and feel of the site, enhancing the quality of product presentation as well as spending editorial content. We get encouraging feedback from customers on the new site, but we will clearly have to put more work into further improving usability and on-site merchandising to turn around online sales trends. Our physical store network grew by net new 14 freestanding stores in the 1st 9 months. While we added 33 stores by openings and takeovers, we also shut down 19 locations. Europe was a focus region in terms of expansion but also closures. Most of the closures here are as well in the other regions related to locations where we simply choose not to renew the rental contract so they reflect the normal course of retail business and came at no exceptional cost. However, we're also actively closing underperforming stores as part of our program to safeguard the group's long term profitability. Early in 20 16, we announced that we intended to close 20 stores in China and much more importantly from a financial perspective, an additional 20 margin dilutive stores worldwide. In doing so, we accepted substantial one time costs for the benefit of eliminating losses in the future years. In China, we are largely done. By the end of September, 17 point of sale, some of them counted as shop in shops, have been closed. The global closing program is on track for completion by end 2017. As of today, we exited 3 points of sale, including our former flagship store in Moscow. As a reminder, provision for the expected exit costs have been booked as special items in the Q2 already, so these closures had no direct earnings impact in the Q3. Wholesale revenues declined by 8%, excluding currency effects, in the 1st 9 months, in line with our expectation for the full year. The distribution changes in the U. S. I outlined a minute ago were the key drivers here. In addition, weak demand from retail partners in both Europe and the Americas also had an effect. In the Q3, general sales declined by 11%, affected by the reversal of the timing effect mentioned before, which had supported revenues in the 2nd quarter. Let us turn below the top line where we had good progress in limiting the impact from the current top line pressure. In the year to date period, the group's gross profit margin remained unchanged compared to the prior year period. While we benefited from a positive general mix effect, the price reductions in Asia had a negative effect. In the Q3, the overall picture was similar. At 64.7%, gross margin was virtually the same as in the prior year. In addition to a positive channel mix effect, we reduced rebates in all distribution channels. On the negative side, the devaluation of the British pound caused an adverse translation effect. Price changes, however, were not a swing factor in the quarter any longer. This was due to the fact that the effects from the adjustments in Asia is now abating, given that we had started reducing price levels in the second half of twenty fifteen already. In addition, increases in Russia and Germany, in particular, had an offsetting effect. On the cost side, the efficiency program announced a few months ago has generated even better results than initially anticipated. Selling and distribution expense growth was curbed by successful rent renegotiations, in particular in Asia. Additionally, we reduced marketing expenses proportionally to sales. G and A expenses benefited from tight operating overhead cost management. All in, we now expect to exceed our original savings goal for the full year. Instead of the €50,000,000 targeted earlier in the year, we now forecast expenses to come in €65,000,000 below the original budget. The additional benefit has to do with a better retail cost management as well as the streamlining of marketing expenses. Nonetheless, EBITDA before special items was still down 18% in the 1st 9 months. The group's EBIT and net income declined even more significantly as a consequence of special items largely incurred in the first half year as well as higher depreciation and amortization expenditures. However, keeping in mind that especially retail sales remained depressed also in the Q3, this represents a better outcome compared to our expectations just a few months ago. From a regional perspective, profitability held up the best in Europe relative to the 2 other regions. In the Americas, operating deleverage from the severe decline of sales led to margin contraction despite the strict containment of costs. In Asia, the profitability decline was largely due to the lowering of selling prices in China and some other markets at the beginning of the year, which was only partially offset by tighter overhead expense management. Corporate unit costs were unchanged year over year, reflecting strict expense control and central functions. Finally, let me discuss some key balance sheet and cash flow developments. At the end of September, trade net working capital was down 5% in currency adjusted terms as well as in euro terms. Relative to sales, this represents an improvement of 10 basis points compared to the prior year period. Inventories continue to be well contained, irrespective of the negative top line development. At the end of September, inventories declined by 1%, excluding exchange rate effects, driven by double digit percentage decreases in the Americas and Asia. In line with our guidance, investments were down 16% compared to the prior year and amounted to €119,000,000 in the period. The decline was due to lower retail expenditures, primarily as a consequence of more moderate expansion as well as the non recurrence of several prior year projects. This includes the relocation of our New York City showroom and the expansion of our production in Izmir in 2015. In contrast, IT investments remained on prior year levels, reflecting the in sourcing of the online fulfillment in Europe now completed as well as other ongoing digital initiatives. As a result of lower CapEx and trade networking capital improvements, free cash flow increased by 14% to €106,000,000 year to date. Net debt, however, was still above the prior year level at the end of the period, owing to the earning declines and the dividend payout in May. Our expectations for the full year In On Retail, the contribution from NewSpace should compensate for declines on a comp store basis. Sales in the wholesale business will decline by up to 10% in currency adjusted terms. A stable gross margin development and disciplined cost management should continue limiting the operating deleverage from the negative sales trend. Consequently, we project EBITDA before special items to decrease between 17% 23% in 2016. While we have not changed our profit outlook despite higher savings, even stricter than initially expected cost management should keep us well above the lower end of the guidance range for EBITDA even if comp store sales performance did not improve versus year to date levels in the remainder of the year. Investments should amount to between €160,000,000 €180,000,000 visibly below 2015 levels. And as we also expect working capital management to make a strong positive contribution, free cash flow is projected to remain on prior year levels despite the earning decline. Our most recent performance testifies to the effectiveness of the measures we have initiated over the last few months. The price adjustments in Asia are starting to pay off. The containment of rebates in non retail supported brand strength and contributed to the stable gross margin trend. Strict inventory management and disciplined investment activity will ensure that free cash flow will be on prior year levels in 2016. And even greater than the planned cost savings will limit profit declines. Ladies and gentlemen, we are a company that has run a very successful business for many years. This has made the developments over the past 12 months all the more sobering, not just for me, but for everyone at HUGO BOSS. We take pride in having adjusted our cost structures very quickly to a more difficult industry environment and company situation. There's no doubt that HUGO BOSS continues to stand on a very solid basis. But we all have the ambition to return to growth, the sooner the better. On our Investor Day on November 16, we will be giving you a detailed account of our plans for the medium and long term. But before I will meet you there, let me answer your questions on today's set of results and our outlook for the remainder of 2016. Thank you. We will now take our first question from Thomas Chauvet of Citi. Please go ahead. Good afternoon, Marc. I have three questions, please. The first one on the cost savings. Could you give more details on the nature of these additional €15,000,000 of cost savings? What is the timing of this? And do you think you've done the bulk of the cost reduction efforts? I think €65,000,000 is about 5% of your total cost base. Secondly, on the LFL, which improved marginally, I would say, sequentially from minus 8 to minus 6 quarter on quarter. What markets have improved beyond Mainland China? And conversely, which markets are worrying you as you enter in the important festive season? It'd be great to know what were the LFL in the month of September October compared to minus 6%. I think we've seen these 2 months overall quite better than Q3 for some of your peers. And lastly, on the dividend, you've guided for a free cash flow of about €210,000,000 I believe this means you are comfortable with consensus of dividend per share of I think €2.35,000,000 2.4 this year, that would mean you would be exceptionally above the 60%, 80% payout target. Could you confirm that? Thank you. Thanks, Thomas. Let me start with the cost savings. I think we highlighted as part of the call that we were quite pleased by the improvements that we also were able to achieve in terms of adjusting our fixed cost base on the retail side of our business to distribute trends. So where we had to work with assumption, to what degree we are able to adjust, in particular, rental obligation, we have seen a better performance, but it's also clearly due to part to some extent that our performance related part of rents tied to the top line development proportionally also declines in these markets. But overall, we were pleased with our ability to adjust cost savings also based on some very tough negotiations with landlords, which clearly have also noticed our determination to walk away and basically call and discontinue operations that have proven to be not successful for us. In terms of like for like performance by regions, we have seen a slowdown compared to the 1st 6 months in particular in Europe, and I think we commented on that one And tourism, which was still supportive in the Q3 2015, turned into a headwind in 2016. In some markets, in particular, the German also the effect from the price adjustment that we have done in Europe to bring the German price levels closer to the European average might have also played a role. As you probably know, it's too early for us to comment on our expectation on the dividend proposal for the year 2016 at this point in time. But you rightfully picked up our comments on cash flow. We have phrased our expectation or the principles driving our dividend proposal for the current fiscal year not to be based only on the principles which have served us right on a 60% to 80% payout on net profit, but that we would also take the ability of the group to generate a sufficient level of free cash flow plus the outlook on 2017 into consideration when it comes to framing our dividend proposal. So let's leave it at this stage. I think we are happy with the progress we have been able to generate in terms of free cash flow in a difficult trading environment. We still have to see what will be our financial outlook for 2017. This is at the beginning of November, too early to comment on. Thank you. And just to follow-up on the LFL. So beyond Mainland China, you didn't see any improvements in other markets? And also what was maybe a bit of color on September, October? Did things improve from the minus 6% in the Q3? Yes. We I think I mentioned that we have seen some improvement in the U. S. But here, we are a bit cautious because we think that this can be partially due to the analyzing of a very steep decline that we experienced in the second half of twenty fifteen. So here, we would still say it's too early to tell. It remains a difficult market, but the quarter after quarter performance on a like for like base in the U. S. Improved slightly in the Q3. In terms of trading trends, we have seen a slightly improvement to the end of Q3, but overall the trading trends remained relatively stable. The commentary we have seen from any industry research also indicated that in particular, the month end of July until early September has been particularly challenging all in key European markets, not only for us, but also for other market participants. Okay. Thank you. Thank you, Marc. Thanks, Thomas. Our next question comes from Fred Spiers of UBS. Please go ahead. Hi, Mark, Dennis. Thanks for taking my line. I have three questions, please. First one, a follow-up on Germany. It looks like you took high single digit price at start of H2. So I just wondered if you could talk a bit more about the volume reaction you've seen in your retail stores to that price move? Also how you now feel about the price gap between Germany and France and whether that's now appropriate? And the second was a little bit more on the extra cost saves you've talked about. Is the full level of these €15,000,000 cost saves going to be incremental into H1 next year? And the last one was on your recent Handelsberg interview. You indicated plans to abandon the price elevation strategy and return to selling premium men's clothing. I just wondered before the CMD, if you could perhaps give us an early sense of what this means in practice, your price mix outlook. Does this also perhaps mean a less strict approach to discounting ahead? Thank you. Yes. Let's start with the price adjustment we have done in multiple categories in Germany. We have a lower supply gap between Germany and France, which historically was around 30% to something that's now slightly less than 20 percent. To take this as a very visible price point, it's the entry price point on suitings, which we increased from €400,000,000 to €500,000,000 with the delivery of our fallwinter collection. But it has been broad based, roughly 15% to 20% price increase that we have seen across major categories. We have seen, as I mentioned earlier, this has, from our perspective, some impact on unit sales in our own retail, which also contributed to the negative performance that we had. Overall, we would say our performance in the Q3 is relatively close to the overall industry. So I think it was only marginally worse than what the overall market has experienced in Germany in the Q3. On the cost savings, please always keep in mind this was not a €65,000,000 cost saving against the cost base of 2015, but we always framed these cost savings against original budgeted cost development for the year 2016 as we started the year. So I'm very pleased that we are now operating at operating cost developments in particular in the Q3, which is in most cost lines now in line with our top line as we have renegotiated our rental costs in many instances, but also have slowed down significantly our buildup of resources and focused on these elements most important to us. In particular, in the piece of digital, I think we mentioned that. I think this is also a lead into your third question. We will focus on the core of our business in terms of our product range, which is menswear and apparel in particular. It's also in terms of price positioning, which is the upper premium market and not the luxury. Here, we intend to focus our marketing spendings here. Ingo Wills and his creative teams will work on strengthening our product offering not only in terms of the width of the offer, but also in terms of attractiveness. We think that in particular in the menswear sportswear section, casualwear, there are improvements needed based on the feedback from our retail merchandising and wholesale partners. This will become visible in more details at our Capital Markets Day, where Ingo will detail the measures we take also in terms of increasing the overall attractiveness and desirability of our offering. It has nothing to do with I think we're on a pretty good track and this has also demonstrated our Q3 numbers that we continue to hold a very tight line, tighter than many other market participants when it comes to in season promotion. But as we discussed earlier, our strict management on discounts has an implication on the traffic numbers, in particular, in the U. S. Market. Okay. Thanks. Thanks, Brett. Our next question comes from Claire Hough of RBC. Please go ahead. Hi, Mark. Thanks for taking my questions. I also have 3, please. The first one, just wondering if you could give an update on the brand repositioning strategy in the U. S, please. So are you completely out of off price specialists now? Are there more takeovers to come post Macy's? And also what's happening with outlets in the U. S, please? That's the first one. 2nd one just around pricing in China. Are you happy with where the prices are after the last investment? Or can we expect a further step down perhaps next year? And then third question, just around marketing spend. Just wondering if there's any area in particular where you've pulled that back, please, and whether there was any impact on sales at all as a result? Thank you. All right. Yes, as we mentioned in the call, we are happy with how swiftly we were able to implement to pull our presentation out of off price third party distributions. This is from our perspective completed. We have ongoing discussions with our full price partners, which, as you know, also operate off price distribution channels, be it the Nordstrom, be it the Saks, Bloomingdale's, to what degree we can further reduce our exporter and their off price channels, while we also clearly have a strong interest to maintain and improve our full price relationship with them. So this is an ongoing effort with too early to tell to what degree this will further reduce it. It's clear that our intention is that also our wholesale partners use their off price channel only to the degree to clear regular course of our business relationship and not to support a standalone business model. This also implies to our outlet strategy in the U. S. We would, to some degree, subscribe to the view that this is a market where HUGO BOSS has an upper end of share of sales in the off price channels compared to the rest of the world. We think we have taken the right order of measures that we first cut third party off price channels before we are going forward. We will also have to address what degree we are should have a presence in terms of number of stores and share of retail sales in the off price channel also managed by us. Over the next couple of years, I would expect that we are make also progress to improve the share of retail sales generated by our own full price stores. In terms of pricing, you know that pricing impact in China, the price adjustment that has had a very positive impact and clearly has been supported by other factors outside of our dry control, We were surprised positively by the volume uplift that we have experienced over the last couple of weeks. We will very carefully evaluate the impacts to that. Marc Lemmat, the Managing Director of China, will also be present at the Capital Markets Day to go in more detail what has worked well from our perspective to increase in particular in terms of volume or share into this market. We will not rule out further pricing adjustment in China, but given the strong momentum we have generated so far, I don't see any immediate need for further price adjustments. In terms of marketing spending, reallocation, of course, we have continued to focus our marketing spending on these measures, which are important to drive traffic and conversion in our stores. These are investment in digital fields. I think I mentioned that we are now trying to build on the momentum with the newly introduced also now transactional Hugo Boss app to continue after the relaunch to work with search engine optimization when it comes to driving traffic to our store, which has been reduced as classical print advertising in line, I think, with the industry wide phenomenon. And with the second half of the year, we have refocused our marketing efforts away from womenswear to a more healthier balance with up to 75% well, in this year, it's more 50 percent to 75% share of menswear compared to the stronger focus we had on womenswear before. Perfect. Thanks very much. Thanks, Claire. Our next question comes from Luca Solca of Exane BNP Paribas. Please go ahead. Yes, good afternoon. I was wondering if you could potentially help us to try and understand how much of the minus 6% like for like is coming from one off adjustments that you had to take like for example the price cuts in Germany as well as from contingency situations that you faced during the period like weather, for example? And how much is instead coming from the broader market downward pressure that you're seeing? Connected to that, my second question is we're all clearly hoping that like for like will move to the positive and that demand will move in the right direction. But if it was not to do so, I wonder if you have prepared contingency plans for further cost efficiencies going into the New Year as you must be in budgeting mode? And what kind of like for like decline you would be able to resist assuming that you can defend free cash flow generation? Last but not least, I was wondering when you see digital contributing a positive tailwind to top line growth? And how much could this be going forward, especially looking again at 2017? Thanks very much. Thanks, Luca. I think we would all agree that your first question is a very tricky one, but let me try to give a knack on it. Well, first, just to correct one, Germany was not a price reduction, it was a price increase. But I think you also referred to factors like this, whether they are now onetime or nonrecurring, it's clearly a question of debate. If you look at if you dissect like for like developments across all geographies, the key factors on physical retail is a decline in traffic. And sometimes we can explain these factors like we were able to do in the most part of Europe with data with that we have from Global Blue and other sources that we are clearly dealing in an environment with much lower number of tourism that we can separate what is the development domestic versus tourism. And tourism, as we explained, has been a subdued factor. So here, I would argue with a more stable macroeconomic environment, also concerns about securities subduing that Europe will continue to be a favorite travel destination, in particular with the upcoming middle class in emerging markets. What's clearly a phenomenon that I see more on a midterm base is the changing purchase behavior, in particular from a younger generation, which is our core business, domestic consumption. This goes back to also your third question. We have to be quicker. We have to be more agile when it comes to serving these younger customers across multiple channels. So the historical clear separation between online store and physical retail has clearly gone. We have made okay progress in offering industry standard services. We now have to surprise customers with services that excel in terms of execution and range other players in our industry, and we are clearly working on that one. And this will be one major topic as part of Bernd Hagee's presentation and also from Richard Lloyd Williams at our Investor Day. What is already in place and what is further needed to steam traffic, which will also in the future from my perspective, increasingly we will come via at least partially via digital sources. Digital or digital influence sales have to become again a contributor, not a drag on performance like it was in the 1st 9 months. We are a bit cautious to forecast the exact time and date when this will happen, but we can ensure you that we are clear I personally see it as the biggest disappointment we develop in the Q3 in the online business, and the majority of our resources are now focusing to not only improve online as such, but also the online impact the impact online could have on our physical retail business. And this brings me to your second question. Clearly, we have lowered the bar of needed like for like improvements needed to maintain retail profitability. We are not able to sustain retail like for like at least on the last 12 month base once we are negative territory, but the minimum to maintain retail profitability has come down. Historically, we have guided you for lowtomidsingledigitlikeforlikeneeded to maintain that, giving us a now improved cost discipline to the group. This level has been lower. But to return to growth and return to increase in profitability, the group has to return to at least low single digit like for like development, all other things equal. We will now take our next question from John Guy of MainFirst. Please go ahead. Thanks, Mark. Three questions, please, for me. You mentioned in the 9 months report that you were going to work more intensively on market presence and brand promise. Now I guess within the context of a softer comp and the like for likes, still down pretty heavily in the 3rd quarter and that weak performance in online that you've just mentioned. Can you elaborate what you mean by those two points and what you think the financial impacts can be? In terms of the cost savings that we've seen come through, the additional €15,000,000 to €65,000,000 for the year, within the context of the other operating costs, which were up at €66,000,000 of which I think €49,000,000 are coming from store closures, etcetera. Think you mentioned that you've closed 3 out of the global sort of 20 underperforming stores. Can you maybe talk about what other potential costs we're likely to see rolling forward on the back of further store closures? And then maybe just following on for Thomas' question around the free cash flow stability. In terms of that dividend payout. Is it fair to assume that we should expect you to move closer to 100% payout, given the fact that the free cash flow looks pretty stable and that would be a one off? Or is that a sensible assumption to make, obviously, when you're just about to announce a more sort root and branch potential restructuring during the Capital Markets Day? Thanks very much. Well, thanks, John. Let me start with the first one. I think we touched on this one, I think also as part of the presentation and some earlier questions. Clearly, there's work to be done to strengthen and to increase attractiveness of our menswear offering, both in clothing dress furnishing, but also in casualwear and sportswear. So here we're working on to have an above the competitive set offer in terms of quality, but also in the breadth of our offer compared to what we were able to offer over the last 12 months. So this is clearly needed to serve our customers in our own retail network. Our share of tailored was tailored and or made to measure has proven to be not sufficient to compensate for the losses that we have incurred on the entry price points and we're now reverting that without walking away from our tailored offer. So that's I also want to make clear that this is not our intention, but we need to right balance. And clearly, there was a mismatch in particular on the entry price points in terms of the breadth of the offer, but also in terms of the attractiveness of the offer. That's what we mean in all our brand lines and more details will follow at our Capital Markets Day have to play a cohesive role that we are it's a brand offering that also easy to understand in terms of communication, but also brand experience as a point of sale for the end consumer. On the cost saving, just to be clear, the expected cost impact related to the 20 overall largest loss making stores that we will close has been booked part of the Q2 numbers. There were only marginal adjustments now that we are in advanced negotiation. And you're right, but you pointed out that we have successfully closed already 3 out of this 20. The cash flow impact as we actually settle these agreements will happen over the next 15 12 to 15 months. We guided you to expect that the effective closure will happen over the next 15 months. So the cash flow impact will incur us in the moment where the closing is agreed on. But from today's perspective, we don't see any need to revise this number of the 20 loss making stores that we have identified and decided to close at the half year results presentation. In terms of payout, I understand your eagerness to understand either in absolute or relative terms to get a better guidance from the group on our potential guidance there. Please bear with us that we can't be more specific than I was earlier that we are overall, we reiterate our dividend policy as the right one for the group, as the group that will return to a growth path that has a cash rich, cash generating business model. However, the phrasing of the dividend proposal, we cannot allow us to lock us in any specific percentage or absolute amount at this point in time, given that we have no visibility or no sufficient visibility yet on our investment needs and opportunities for the year 2017 and Sequium Asset Management outlook for the year 2017. We will cast more light on this point. I understand this is a crucial element of our equity story, and you can be assured that we place enormous focus on our ability to create to generate a sufficient cash flow. But it's too early just at this point in time to give you more precise guidance on the absolute or relative amount of our dividend proposal. So please bear with us. As soon as we have more news to share, we will come back to you, but this is not the point of time now at the beginning of November 2016. Thanks, Mark. Maybe one very brief follow-up. You mentioned that all your brand lines have to play a more cohesive role going forward. Can I interpret that to mean that during the Capital Markets Day, you will be confirming that you will stick with a full brand strategy? Is that a fair assumption to make? As I said, the there is rework needed in our brand portfolio between our price points under the BOSS name and also in combination with the HUGO, in particular, the 3 different lineups under the BOSS name and also in combination with the HUGO, it's not always easy to understand and to be perceived from an end consumer. And clearly, there's work to be done. And we are working with high intensity with Ingo and the team, together with Bernd Hage representing the market to see where need for action we have need for action and we will detail our plans on November 16. Thanks very much indeed. Thanks John. Our next question comes from Antoine Belgy of HSBC. Please go ahead. Yes. Can you hear me? Yes, I can hear you. Antoine, go ahead. Yes. So first of all, I have 3 questions. But first of all, just maybe a clarification. Regarding the marketing to sales ratio, so as a percentage of sales, is it expected to be coming down this year? And has it been the case in the 1st 9 months? My first question is relates to the relative performance of the core YUGO BOSS brand versus green, orange and YUGO. Has there any been some really outperforming others? 2nd question relates to womenswear. Maybe a bit of comment on the recent performance and what should be the importance or the weight of women's were going forward in your strategy? And finally, contribution from new store was quite high this year in the high single digits. Which quarter should it be significantly slowing? And what has been the impact of those high single digit new stores in terms of EBITDA? Was it dilutive or accretive to the EBITDA margin? Thanks, Antoine. Let me start with the first one. Overall, we expect that the marketing to sales ratio that we have experienced over the 9 1st 9 months are more or less stable for the full year. So we're happy even though it's a completely different composition with the relative marketing spendings that we have incurred in the 1st 9 months. So we expect this also to be true for the remainder of the year. If I understood your second question correctly regarding the brand lineup, brand lines under the BOSS name, We as I also told John, we have very strong performing brand product offerings under the BOSS Green and BOSS Orange, in particular, in the casualwear segment. In most markets, they have the number 1 or number position when it comes to the casualwear segment at most of our wholesale partners. However, we need to make sure, and this is part of the work I mentioned earlier, that consumers always see our BOSS offering as one consistent brand offering and brand promise in terms of quality, but also more importantly in fashion degree targeting to the same customer just on different wearing occasion, where Boss Black is clearly wearing occasions more on formal occasion, business attire, Boss Green is more on the casual wear similar to the Boss Orange offering. But this brand offering clearly needs to be sharpened. We have shifted from today's perspective too much marketing support on the women's wear side of our business, and we need to rebalance that to make it very clear to the consumers what is the purpose, what is the role our men's line play visavisie and consumer. Womenswear has performed basically in line with our menswear line in the Q3. We continue to see surprisingly strong performance with the HUGO line. BOSS women's wear was a bit more subdued. But as I also mentioned in the interview that was already cited earlier in this call, we are fully committed to our Women's Wear business. We see it as a pillar of our mid to long term growth. However, we have to be cautious and well balanced in our investment marketing decision that we can only support women's wear to the extent that this is also supported by the size of the business and the contribution overall to our business. I think your last question was on the space sales and profit contribution from openings affecting our retail numbers, please keep in mind, just to remind everybody in the call that any store that we have taken over or opened since January 1, 2015 is still in the bucket of non like for like. So as the year 2016 progresses, especially in the Q4, the impact from new openings will become smaller. The Q3 is typically the last major quarter where this plays a role. So to answer the first part of your last question, yes, we expect a decreasing impact from new openings given that we have opened far a much lower number of stores in 2016 as we move into the Q4. What we have opened and added to our universe over the last let me calculate, 24 21 months was the regular course of business, typically the 150, 250 square meter freestanding stores, a couple of concessions that we've bought back. Our experience does not differ in 2016 to what we had in previous year that typically in the 1st or second year, these stores are slightly dilutive to the store overall retail performance, but we see no major discrepancy or differences to historical trading trends. Thank you. I mean, is it possible for you to give bit of a guidance in terms of that contribution from new store in 2017? Not at this time. Unfortunately, not at this time, Antoine. We will detail also our plans on the retail network as part of our presentation that, in particular, Bernd Harker will have on the Investor Day to give you also more color on whether and where we see further growth opportunities in retail, but we will not comment and it's part of the conference call on 2017 space growth. Okay. Thank you. And I will wait until 16. Thank you. See you there. Our next question comes from Julien Easthoek of Barclays. Please go ahead. Yes, thank you. Good afternoon. I'm clearly not very good at this star one. I think Thomas must been on since breakfast to be first in the queue. But anyway, I've only got 2 follow-up questions. First of all, in terms of online, is your online are your online numbers included in your like for like growth numbers? And in that case, also with the online, now that you've actually relaunched the site, have you seen are you expecting to see an immediate recovery in Q4? And is that sort of a positive effect now? And secondly, just coming back to the German pricing. It's obviously going to persist the price increases will have a knock on effect into for the next three quarters, I guess. But is it your long term aim to ultimately have single euro based pricing across all the regions so that Germany will therefore still have another 20 percent increase to go to to catch up with France? Thank you. Yes. For many quarters, the online business was accretive to our like for like performance overall. So to answer your question, it's always if it's like for like, so if we have operated in the specific market, the store already for completely in the former fiscal year, it's like a physical store. It's part of the like for like universe when we talk about retail performance. It has been accretive to our like for like performance, I think, up until Q1 2016. For the last two quarters, it has been diluted. But it's part of our retail like for like definition. Also, by the way, this is how our consumers increasingly see it as one retail channel independent whether they buy or return or pick up product in our stores on or via our online outlets. It's too early to comment on the relaunch numbers. We have some qualitative data that gives us the confidence that we're on the right track. Unfortunately, the improvement on the desktop solution becomes increasingly less impactful as we I think I mentioned this earlier, we see strong increases in the mobile devices in a way we are faced with channel mix effect in our online business, which right now works not in our favor. I think we mentioned already some of the measures that we are taking to improve also conversion rate when it comes to mobile devices. It's too early to tell from today's perspective what will be the impact also in the month of October, November, December, which clearly are the decisive months when it comes to online sales also in our business. On the German pricing, which by the way also affects the Benelux and also Austria, these are the in total 5 markets so Benelux, Germany and Austria, which historically have been below the rest of European price level. All of them are in the euro zone. We see a tendency that at least in the euro zone prices also driven by what we just discussed, the Pan European Online business, will gradually become homogenized. Cuboblast has taken significant step towards this direction. Today, we will not speculate whether and when we see a complete harmonization of these prices. But clearly, we all recognize that they are strong market forces, which will very likely lead to harmonization on 1 euro price list for many industry participants, including us. Okay. Thank you. Just coming back to the online. Are you part of the Apple Pay 2 rollout with the fingerprint payment? Are you actually part of that payment processing? Not yet, but we are looking at the functionality. I think this is right now, we have also a sizable business in the U. S. Where we want to test this first. Where also the barriers there are some also legal barriers to overcome, not only for us but for the whole industry. But we are planning to have the Apple payment opportunity to become available first for our U. S. Customers and then we will bring it to the rest of world including Europe. Thank you very much. See you on 16th. We're looking forward to see you there. Ladies and gentlemen, we have time for only one final question from Andreas Inderst of Macquarie. Please go ahead. Yes. Thank you. A few questions on working capital and CapEx was well managed year to date. How sustainable do you see the development in working capital and CapEx? And what else can you do maybe to improve working capital management going forward? That's my first question. The second question is, you highlighted the deterioration in Europe in recent months. Does this include October? Or have you seen any signs of stabilization maybe in a like for like basis given you had some order shifts between Q3 and Q2? And my final question is on your guidance for the full year. What actually has to happen to get to the lowtomid range of the EBITDA guidance given year to date has been slightly better than expected and you announced further cost measures? Thank you. Yes. Let me start with the balance sheet items and on the CapEx level. I think we have managed I would agree to your assessment that we have been better prepared now in managing our inventory levels and also introduced new processes to mitigate the impact from slowdown in certain sales in certain markets by shifting merchandise quicker to these parts of our business where we still see stronger demand, which has helped us in terms of relative performance even to improve by 10 bps versus last year, but with 19.x, I think we're 19.1%, 19.2% of net sales right now. We're still above historical low levels for the group. I think there's still opportunities to further improve. However, we expect latest with the in the course of 2017 that we will shift year again not to manage an adverse market environment with negative sales trends, but to make sure that we are not we have a sufficient level of inventory to be ready for pickup in the market based on better marketing, better product, better retail execution. On the investment, the key driver to these numbers, as you know, is the amount of money we need. On the retail side of our business, we continue to invest into the IT and logistical infrastructure, but this will continue to be the smaller part of our investment plan as we guided also on going forward that we don't see as many takeover and white space and expansion opportunities. Also for the years to come, we expect compared to the 2015 levels, a more subdued investment level. However, we will not be more precise at this point in time to comment on our investment plans for 20 17. In terms of the like for like European development or the like for like development, I think we tend to have a short memory. We try to calm your excitement about the strong Q2 development because this was slightly inflated due to stronger than underlying wholesale performance, and this is now working against us in the Q3. If you look at like for like development in Europe as such, it's virtually unchanged in the Q3 compared to the second. We did expect a slight improvement and come to the outlook in a second, given that Q3 2015 was an easier to beat quarter than the Q2, but the like for like trend in the Q3 was in Europe more or less the same, Southern was slightly weaker, the U. K. Market slightly better. And this brings me also to your question in terms of EBITDA guidance for the full year. We have left the corridor unchanged. See our year to date performance is within the corridor. The key we are confident that we will hold a strict line in terms of OpEx development. We are confident that we'll deliver on gross margin development, which is difficult to predict for us. And the Q4 is of paramount importance to that as a like for like development in the Q4. We also guided the market to expect even with the continuation of the current negative trend year to date and we're comfortable with our full year guidance, but the like for like development in the Q4 is clearly the decisive element at which end of the guidance we will ultimately end up on given that we were able to be at the upper end of the guidance in the Q3 with a 6% negative like for like gives us some confidence that this is a company earnings guidance we feel very comfortable with. Okay, fair enough. Thank you and see you soon. Thank you. See you. Thank you. That will conclude our question and answer session. And now I would like to turn the call back to our speaker for any additional or closing remarks. Yes. Thank you very much. Thanks for your interest. I think we have not been able to all questions. But if there's anything that has not been answered, please feel free to reach out to Dennis and the team for any follow-up questions. And I'm really looking forward to see hopefully all of you in our Capital Markets Day event on November 16 in London. Thank you very much. Thank you, Mr. Langer. That will conclude today's conference call. Thank you for your participation.