Earnings Call: Q3 2015

Nov 3, 2015

You very much, and good afternoon, ladies and gentlemen, and welcome to our 9 months 2015 financial results presentation. With me on the call today is our CEO, Claus Friedrich Lars. Claus is traveling at the moment, but he will share his view on current trading and outlook at the end of this presentation. And of course, we will also answer your questions afterwards. But before this, let us start with a recap of financial performance. Overall, group sales 3rd quarter sales came in below our expectation. 3rd quarter sales came in below our expectations. Q3 sales grew 4% in euro terms, but were down 1% in local currencies. In Europe, 1st 9 months sales were 5% above the prior year level due to double digit growth in own retail, compensating for a slight decline of wholesale revenues, up 14% on a currency adjusted basis. The U. K. Continued to be the region's fastest expanding market. Germany and France generated growth of 5% and 4%, respectively. Sales in the Benelux market declined by 3% as a result of ongoing account rationalizations in the wholesale channel. 3rd quarter trends were broadly in line with the first half year despite some temporary weakness in August. In the quarter as a whole, retail trends were particularly strong in the U. K. And France. Among the smaller markets, Italy and Scandinavia outperformed. 9 months revenues in the Americas were 1 percent below the prior year in local currencies. Growth in own retail was offset by high single digit decline of wholesale sales. The key U. S. Market was down 2%, while Canada as well as Central in Latin America trended in positive territory. In the Q3, performance weakened significantly. Sales in the region overall were 7% below the prior year. This was primarily due to the U. S. Where revenues declined by 10% in currency adjusted terms. Retail performance deteriorated in August September, suffering from a double digit decrease of footfall. Wholesale sales were affected by weak replenishment sales and some short term order cancellations. Finally, Asia Pacific recorded a 2% sales decline in currency adjusted terms in the 1st 9 months. Momentum differed significantly by market. While China was down 6%, Australia and Japan performed much stronger, generating growth of 9% and 6%, respectively. Similar to the American region, strength in Asia also deteriorated in the Q3. Sales in the region overall decreased 12%, dragged down by lower sales in China. Our business in China declined by 20% in the 3rd quarter, impacted by weakness on the mainland as well as even more pronounced decreases in Hong Kong and Macau. A lack of footfall was again the main negative factor here too. The upgrade of our offering, that means the introduction of richer, more refined styles at unchanged price points, supported the BOSS value proposition, but was not enough to withstand the overall market weakness. Note that tourism caused visible sales shifts between the regions again. In Asia, Japan and Korea benefited from Chinese tourist demand. In Europe too, our business with visitors from China was up by more than 50% in the 3rd quarter again. While Italy was the main beneficiary in this respect, our U. K. Business was supported by sharp increase of demand from U. S. American tourists. By distribution channel, year to date owned retail revenues were 8% above last year's level. Retail sales increases were driven by new openings and takeovers as well as comp store sales growth of 3% year to date. The latter was due to solid growth in Europe. The Americas and Asia, however, recorded low single digit comp store sales declines in the 1st 9 months. In the 3rd quarter, group like for like sales were in line with the previous year, with August September trending visibly weaker than July. While performance in Europe remained positive, comp store sales declined at the mid single digit rate in the Americas and at the high single digit rate in Asia. As mentioned before, declining store traffic across all regions exerted the biggest drag on comp store sales performance. In Europe, we were able to offset this with better conversion rate and, above all, bigger basket sizes. In the Americas and in Asia, however, the effect from fewer store visitors could not be fully compensated. Group wide, the outlet channel developed better than directly operated stores, especially in Europe and in Asia. In the U. S, however, trends did not differ materially between the channels. Here, the outlet channels suffered from similar sales declines compared to full price retails in the last 3 months. In contrast, the online business continued to grow strongly. In the Q3, it registered a 20% increase. Driven by last year's relaunch of hugobus.com is a now far more performance driven approach to digital communication. The number of store visitors continues to be up at a robust double digit rate. Year to date, revenue growth now amounts to 22%. The group store base grew by a net 64 new locations compared to the year end 2014. In Europe, expansion focused on selective shop in shop openings and takeovers in markets such as in the UK, Spain and France. In the Americas, the implementation of the concession business model at Mexican department store, El Palacio del Hierro continued to be accounted for the bulk of the additions. Expansion in Asia concentrated 1st and foremost on the 2 franchise takeovers in Korea and China earlier in the year. 60 6 closures related predominantly to smaller shop in shops of limited commercial importance. In particular, we exited almost 30 spaces in the Netherlands we deemed no longer relevant in light of recent freestanding store expansion. Nine closures in China reflect our initiatives to upgrade our network in this market. Wholesale sales declined by 4% currency adjusted in the 1st 9 months. In the Q3, revenues were down 7% in this distribution channel. In addition to weaker sales In Europe, however, the impact to our strategy change in wholesale distribution continues to be positive. As a reminder, we are limiting the BOS core brands distribution in the wholesale channel to shop in shops. Multi brand areas, so called category floors, are now served by the other 3 brand lines, substituting the previous BOSS offering. This migration has now been completed in most of Europe. In Germany, one of the first markets in which we changed this change was executed, our partner sell out performance has reportedly been in line with expectations. This is also mirrored in the order intake for the spring 2016 collection completed in August. And finally, the group's license business was up 7% in the period, thanks to double digit increases in watches and eyewear. In Fragrances, our most recent launch, BOSS Scent has been off to a strong start. Spearheaded by the brand's newest faced British actor Theo James, BOSS Ascent has gained market share quickly. In Germany and several other European markets, it ranks among the top 3 best selling fragrances, complementing the brand's historical stronghold, BOSS Bottled. Our overall menswear business was up 3% year to date as a result of solid increases in our BOSS core brand and HUGO as well as double digit growth at BOSS Green. Womenswear developed in line with menswear. After 9 months, sales were 3% above the prior year. Similar to prior quarters, this reflects different dynamics by brand line. While HUGO and BOSS Orange developed weaker than the overall segment, affected by a reduced base allocation in own retail, business in the core brand was up 10% year to date. The presentation of Jason Wu's latest collection at the New York Fashion Week in September received a very positive press echo again. Editors highlighted the soft and feminine interpretation of tailoring, referencing the Bauhaus artistic movement. With different channels, including an interactive 360 degree recording of the show, HUGO BOSS offered a more engaging digital experience than ever before. Below the top line, the group's gross margin was up 10 basis points compared to the prior year and amounted to 65.4 percent year to date. The positive mix effect from above average growth in on retail was partly offset by higher rebates as well as negative inventory valuation effects. In the 3rd quarter, the gross profit margin improved by 40 basis points. Positive channel mix effects supported the increase. However, higher rebates predominantly related to the clearance of prior season merchandise in the Americas impacted gross margin development by around 0.5 percentage point. Inventory valuation effects, which had played a negative role earlier in the year, were not a factor anymore in Q3. Operating expenses development in the 1st 9 months reflects continued investment in retail, marketing and the organizational transformation towards a customer centric business model. To a lesser extent, currency translation effects also drove cost growth in euro terms. Selling and distribution expenses were up 15%. In addition to a double digit increase of marketing expenses, retail expansion had a significant impact on cost development. The takeovers in China and South Korea, new openings, as well as several renovation projects, including at least temporary store closures, diluted margins. Higher A expenditures were mainly related to the ongoing strengthening of retail processes, systems and competencies throughout the group. In the Q3, however, the rate of cost growth moderated compared to the first half year. Let me underline that year to date expense development was in line with our original planning, reflecting our commitment to invest in the group's medium and long term growth potential. Nonetheless, operating profit developed weaker than expected. This was due to a disappointing top line development 1st and foremost in the Q3 as well as a gross margin increase below expectations. As a result, EBITDA before special items remained virtually stable year over year at €423,000,000 resulting in a margin decline of 190 basis points in the 1st 9 months. Taking into account higher depreciation charges, group EBIT was down 4%. As a result of a more negative financial result and an unchanged tax rate, net income attributable to shareholders decreased 9% to €235,000,000 This translates into earnings per share of €3.40 As a quick aside, let me explain financial results developments in more detail. In the Q3, the group's financial result was impacted by a negative non cash effective charge of around €60,000,000 related to adverse exchange rate movements. This effect was mainly due to the intercompany liabilities in Brazil, denominated in U. S. Dollar and Switzerland, originating from loans used to finance the group's operations in these markets as well as intercompany sourcing transactions. As a result of the devaluation of the Brazilian real and the Swiss francs, the translation of these liabilities into the local market functional currencies resulted in a significant liability increase at the end of the Q3. In the meantime, we have taken steps to prevent similar effects going forward. First, we changed the financing of our Brazilian subsidiary from the U. S. Dollar to the Brazilian real in order to manage all currency risks centrally. 2nd, we have now hedged around 75% of our Swiss francs net exposure. While the extent and magnitude of exchange rate movements will remain impossible to predict, we have taken steps to lower the group's interest expenses too. In early October, we refinanced the group's syndicated loan in an amount of €450,000,000 before maturity. The new loan has the same volume, a term of 5 years, carries the variable interest rate and can be flexibly drawn. Based on its attractive terms, we expect future savings to more than compensate a negative low single digit €1,000,000 effect in the Q4, mainly related to the closeout of derivatives used to hedge interest rates at the old financing. Currency translation effect also distorted our segmental reporting. Keep in mind that just around a third of our sourcing is denominated in U. S. Dollar terms, so the regional profit development in the Americas and Asia is flattered by a positive currency translation effect on the top line, outweighing the headwind in COGS. In Europe, however, the currency impact is broadly neutral on the top line, but negative in COGS. As a result, the European margin would have increased when excluding currency effects despite higher operating expenses. The other way around, the American margin development would have been negative adjusted for the currency. This was a consequence of higher rebates and negative inventory valuation effects impacting the region's gross margin. In Asia Pacific, finally, depressed retail performance in the region's key market, China, margin dilution from takeovers and investment in retail and marketing drove an overall profitability decline. Let's turn to the balance sheet, where we made good progress in managing working capital. In particular, the rate of inventory growth has slowed sequentially despite a weaker than expected retail sell through in the U. S. And China in particular. At the end of September, inventories rose 12% in euro terms or 3% excluding exchange rate effects. This growth rate includes different dynamics by region. On the one hand, we are clean in Europe. On the other hand, further progress will be needed in the Americas. Here, we will continue clearing excess merchandise in a margin and brand protective way, predominantly via the outside channel, while at the same time adjusting our merchandise planning for future seasons. In doing so, we are confident in our ability to minimize the impact on future gross margin development, accepting that there will be further work to do still in the first half of 2016. For the sake of completeness, receivables were down 8% in local currencies, in line with the sales trend in our wholesale business. Finally, trade payables were up 8% in currency adjusted terms. As a result, overall trade net working capital declined by 4%, excluding currency effects at the end of September. In line with our guidance, investments increased compared to the prior year and amounted to €141,000,000 in the period. Retail, including the 2 franchise takeovers in Asia, made up around 2 thirds of this. The relocation of our New York City showroom as well as the expansion of our Turkish production facility contributed to the increase as well. Finally, investments related to the planned in sourcing of online fulfillment in 2016 accounted for around €10,000,000 reflecting 1st and foremost the upgrade of our logistics and IT infrastructure. Higher CapEx more than offset operating cash flow improvements, so that free cash flow declined to €92,000,000 year to date. As a consequence, net debt was above the prior year level at the end of the period. Based on the seasonality of our business, we expect strong free cash flow generation in the Q4. Nonetheless, we forecast net debt at the end still to amount to between €50,000,000 €100,000,000 Yes. Is that done? Okay. So now let me go a bit into the regions and our outlooks onto the markets. For the European business, we expect the business to grow solidly also in the remainder of 2015 against an easing comparison base. This expectation is based on ongoing strength in the UK, good performance in Germany and France, as well as robust growth in some of the region's smaller markets, in particular Italy and Scandinavia. Tourist demand, especially from Asia, should continue to support performance. In the Americas, however, we expect recent weakness to persist in the final months of the year as well. Market wide traffic declines and overall shaky consumer sentiment as well as high promotional activity by retailers have only intensified in the need to address the challenges HUGO BOSS is faced with in this market. From a short term perspective, we will clean inventory levels to reduce rebate pressure and improve the flexibility of future merchandising decisions. In 2016, we will also work on elevating the quality of brand presentation in the wholesale channel by bringing the concept of category migration to the U. S. As well as expanding dry brand control. In addition, we are optimizing key processes and systems to improve merchandising planning and allocation as well as the quality of retail execution. Finally, we forecast mix trends in Asia to continue. Most importantly, we do not project the market environment in China and Hong Kong to fundamentally improve versus most recent trends. Based on the insight we have into peer trading and premium luxury apparel, we rather believe that our we focus even more on building brand strength, in particular men's formalwear and upgrading our retail network and on improving retail execution. In financial terms, this means we expect group sales to increase between 3% 5% on a currency adjusted basis in 2015. EBITDA before special items is forecasted to grow at the same rate. As we communicated a few weeks ago, this outlook is based on the assumption of stable to positive retail comp store sales development in the 4th quarter, an expectation confirmed by trading in October. Full year wholesale sales are expected to decline at a low to mid single digit rate. However, this implies a somewhat better sales development in any in any way much more retail heavy quarter, 4th quarter operating profit increases will be driven by a better gross margin. As we expect to reverse at least most of the negative impact from higher rebates given in the prior year quarter, we forecast the 4th quarter to generate the best gross margin improvement in 2015. Cost trends, however, will remain broadly similar to earlier in the year, also in the in a as well as the less negative financial results compared to the past 3 months will support net income growth in the final quarter of the year. The rest of our outlook remains unchanged. Investments will amount to between €220,000,000 €240,000,000 in 2015, the majority being related to own retail expansion, refurbishments and takeovers. More specifically, we will open around 65 new retail points of sales, approximately 20 of them being freestanding stores. In addition, we will execute around 75 takeovers, but also a similar number of closures. Ladies and gentlemen, in the last 3 months, trends have deteriorated sharply in key Chinese and U. S. Markets. We were clearly surprised by the speed with which performance weakened and the magnitude of declines unforeseeable at the time of our last earnings publication. While we have to accept the lower visibility ingrained in the retail business model, we will have to continuously improve our organization's ability and to flexibly react to changes in the operating environment. In doing so, we need to connect even more closely with our customers to engage them, to excite them and to learn about their likes and dislikes. The customer is boss and he has to feel this whenever he is in touch with the brand. I'm convinced we have got the right strategy in place to ensure exactly this and to address the challenges posed by the current market environment. We are confident in our ability to record a better 4th quarter performance for overall solid 2015 results. But of course, there will be more work to do still in 20 16. In this context, let me remind you of our invitation to our Annual Investor Day to be held on November 24 at group headquarters in Messingen. The event will offer broad based insights into our plans for 2016 and beyond, including a mix of strategy presentations, showroom tours and inspection of our new distribution center involving key senior management members. But before we meet you in person later this month, let us first answer your question on today's set of results. Operator, we are ready to take questions from the participants. Thank you very much. The first question we have today comes from the line of Anton Belge from HSBC. Please ask your question. Yes. Good afternoon. It's Anton Belge at HSBC. Three questions, if I may. First of all, on the subject of the U. S. Market, several questions actually. I think you mentioned you were not very happy with the way department store were treating your brand in terms of elevation, etcetera. So what do you plan to do there? Should we expect actually that you could be pulling out of certain department stores and maybe focusing isn't it a isn't it a bit disappointing not to see already a bit of improvement there? And finally, you mentioned the inventory situation. How confident could we be that there is no further charges to be taken in the Q1? So in other words, how what is the amount of provisions that you've been already booking into your accounts? My second question relates to actually operating costs. I think you mentioned no big changes in Q4. So from a quality standpoint, does it mean that still there should be some increase in marketing? Are there any areas of cost where you're taking incremental actions compared to, I would say, the change in market condition in August? And finally, when I look at your net profit projections and also CapEx, etcetera, it seems that the net cash position should evolve positively. So could you comment on what will you be your attitude towards the dividend payment? And can we assume that at least the €3.62 paid last year will be like at the minimum for paid this year? Thank you. Thanks, Antoine. Let me start with your question on the U. S. Market. It's not a new phenomenon, but it has clearly accelerated in 2015 and also in the Q3 that we have been put under pressure in our own retail activities by promotional activities from our partners on the wholesale side of the business. We have started, as you know, to take some of these shop in shops into our own hands, and we'll continue to do so. We have started with this process more than 2 years ago with Saks, and we are in ongoing discussions with other major department store partners to take the management of our brand into our own hands. But there's nothing as we as I mentioned in our call, there's nothing to be announced on the concrete timing yet, but we expect further progress in converting these business from wholesale to retail also over the next 12 to 24 months. The other part that we will bring to the U. S. In 2016 is what we call the category migration that we will ask our wholesale partner also in the U. S. Either to invest into the shop in shop quality and presentation when it comes to our core brand BOSS. And if the brand mix is not appropriate for our core brand BOSS, we will ask these partners also to substitute the BOSS brand either by BOSS Orange or HUGO offering like we have done now very successfully in Europe. So there will be more options for our wholesale partners. We think it will help us also in the midterm to erase a bit the highly promotional and rebate effect on our core brand BOSS. But it is a rocky road. It has been a difficult quarter. We were not willing to take participate in a rebate war that as we have seen already in the month of August September, but there's a price to pay and this is a significant decline in footfall. This inventory situation in Americas, as we said, is still slightly above our target rate. Clearly, we are still cleaning the inventory that where we have overbought in 2014 seasonal merchandise, which we are selling as we speak in our factory outlets in the U. S. We have clearly adjusted our buying budgets for the current season. However, also in Q3, actual pro form a was below our initial expectation. So there will be additional clearance needed also as we move into 2016. However, in terms of inventory valuation in all three regions, we have not seen any need to book further inventory write downs, giving our sales capability in our outlet channels to clear older merchandise. When it comes to operating cost development, as we said, we will continue to invest where we do the investment for the long term success to the brand. Marketing is a clear pillar to that, which has increased over proportionally. However, given this far more challenging market environment, we have more cautious in managing other discretionary cost items when it comes to overhead cost development. I think I mentioned a slowdown in the development there as well. So we take a more cautious view on all discretionary cost elements outside of marketing. But also in the only in terms of staffing levels, but we not only in terms of staffing levels, but we are in ongoing discussions, especially in Asia, to take advantage of the opportunity to negotiate lower rental commitments with our partners. However, despite the fact that we executed some of these changes already in the Q3, it was not enough to offset the negative top line development. I think your last question was on the net profit development and the implication on indebtedness to the group and our dividend policy, we clearly confirm our dividend policy to distribute between 60% 80% on net profit to our shareholders. We expect less pressure on the net profit development in the Q4 compared to the Q3 due to a smaller impact from the negative financial results that we had to book in the Q3. However, it's too early now to give you a guidance on the 2016 dividend proposal. It's something that we clearly have to discuss with also as a supervisory board, but we are fully aware of the importance of the dividend yield of HUGO BOSS and this will be clearly incorporated in our proposal that we will put to the AGM in 2016. Thank you very much. Maybe just a follow-up on the U. S. Just to be clear, so you don't think that there have been any mistakes in your own execution there? And also that there is no issue with maybe the perception of the core Hugo Boss brand by U. S. Consumer or any sort of issue with trading up to your price points, especially with U. S. Consumers? From my perspective, I want to know, but I think Claus has joined the conference now as well. Claus, if you want to comment on this one as well. Yes. Thank you, Marc. Sorry for the late participation. What I wanted to add to what Marc already said regarding our U. S. Business is that it's important to understand how early our traditional departments to our partners decided in the most recent past to go on discounts for comparable products under our core brand boss. And this is something we have observed with them for several years. We discussed the issue because in all the relevant important malls, we are doing business with our own freestanding stores at the same time. And we try to convince our partners that full price selling until the end of season sale is in the interest of our partners but also of HUGO BOSS in general. This has been rather difficult because whenever things and times get tough and 2015, in particular during the Q3, has been for everybody tougher than expected, Our partners decide to go I don't want to say to go the easy way, but they rather refer to a discounting at an early stage of the season, which is not in our interest. And for that reason, we will execute the same as we have done already successfully in Europe in the very strong wholesale driven markets like Germany and either move to a concession business, which allows us to control pricing in our shop in shop situations as long as we think full price activities should be supported and then go at the end of the season for the summer and the winter sale into discounting for relevant merchandise or to our wholesale partners the ability to stay with us in YUGO for the closing plus furnishing universe, for BOSS Green, for the sports universe in Boston Orange. So we kind of take conclusion and the consequence of a number of important discussions, and we want to make sure that the future destiny of BOS in this very important market, it's our number one market in the world, is taken care of. Antoine. Thank you very much. The next question today comes from the line of Lukas Solca from BNP Paribas. Please go ahead. Yes, good afternoon. It's actually Exane BNP Paribas. Lukas Solca on the phone. I wanted to ask you possibly a bit more detail on the moving parts of the rough patch you've been finding in Asia. You started to define that in America as well. And how this has been translating into traffic in store, average basket size or any difference in the price points that you were selling in the store, if there was any shift in the mix that was working against you. As a second point, I think you made a point in the earlier conference call that factory outlets were providing a stronger support to like for like growth in the first half of the year. I would anticipate that this is going to be the case in the second half of the year and probably in the first half of 2016 given the slowdown you experienced in the Q3. But I wanted to check this with you and see what you think about it and how you think about this. And from what you say about the various roles that different lines will play, I correctly understand that the smaller and lower priced product lines would also work as a buffer for you in department stores and would allow your wholesale customers to have a more flexible commercial approach when it comes to discounting, for example? All right. So I would like to take your question. First of all, you were asking about traffic. So right now, we see in Europe a traffic decline of something around 5%, in the U. S. Of around 10% and in China, the most affected market with regard to traffic of around minus 15%. In Europe, we were able to overcompensate the decline in traffic by higher basket sales, but most importantly, by more important conversion rates. So this is something which is under control. And I would like to say this is due for Europe, but also for the U. S, decline in traffic patterns are something which is also related tightly to the way consumers take the information before they go shopping. When they went into town or into mall before in order to just roll around, stroll around, in order to discover different brands, but also different assortments. They are much more informed today. And when then they decide to go downtown or to go to their most preferred shopping mall, they have something already very precise in mind. And this means that we need to be better prepared in our stores for consumers who are better informed, who already made up their mind and who expect a more important and more elevated customer service. So traffic decline in itself to us is not the most important issue. It is definitely linked to the fact that the Internet and company websites do take a complete different importance today than only a couple of years ago. With regard to China, I think here we see the worst right now in terms of insecurity. Been in China last week in a couple of major cities. And you see still traffic in major malls, also in streets. But in stores, it's a different situation. And here, we clearly see that at least till the end of 2015 and probably also at the beginning of 'sixteen, we will have to deal with significantly lower traffic patterns and something we need to better understand in order to make more out of the remaining customers who shop with us. But the level of insecurity which has been created by what happened at the stock exchange in China, especially around August, definitely still has an impact on the consumer's mind. With regard to the factory outlets, we clearly prefer to know where our discounted merchandise is sold than to have it sitting for weeks or even months with our wholesale partners. And for that reason, if we don't go overboard with our outlet activities and we will control the number of outlets but also the size of outlets and the number of merchandise we are going to ship from our full price stores into our factory outlet stores, we clearly see a benefit for the well-being of the brand to be in a controlled environment when it comes to just making sure that off price merchandise is sold in separate environments, in separate stores to interested consumers. Is this answering your question? Yes. I think in Yes. I think in principle, I understand. I was wondering whether you continue to see that like for like development in factory outlets is going to be stronger than in full price stores. But I guess that is this is probably implicit in the trading update you provided. So I guess, I take note of a yes. We see in Europe is yes. In Asia and China is yes. In the U. S, we also saw declining traffic patterns in outlets most recently. I see. If I may follow-up on what you were saying. You maintained the guidance to the year end. Is there anything that you can tell us from current trading that could help us understand if you're facing the same challenges or if there's any relief that you're seeing from the market at this stage? I don't see any relief compared to what we told you only a couple of weeks ago at the beginning of October. We expect tough trading conditions to continue till the end of the year 2015 and probably also at the beginning of 2016. We are prepared for that. And for that reason, I don't think that apart from a very positive momentum we're enjoying in Europe that we will see any major change in the U. S. Market and in the Chinese market. Thank you very much. See you in Metzingen. Wonderful. Looking forward to see you there. Thank you very much. The next question today comes from the line of Claire Huff from RBC Capital Markets. Please go ahead. Yes. Hi, there. Three questions for me, please. The first one on Q4 OpEx. Assuming a stronger positive gross margin in the last quarter and then the sales growth needed to meet your guidance, it looks like the euro growth in OpEx will need to slow quite a bit in the last quarter to hit the EBITDA growth target. I think you touched on this in an earlier question, but I just wondered if you could talk about the one off costs that have incurred that have occurred in the 1st 9 months. And also if you could give a sense of the magnitude of FX on OpEx, that would be helpful because I think you've said that the headwind reduces in the last quarter. The second one, appreciate it's still too early to give formal guidance for 2016, but I wondered if you're still aiming for EBITDA margin expansion year and also whether there are some OpEx investments in infrastructure and IT, etcetera, that won't repeat next year that happened this year. And then finally, a quick one on the dividend. Just given the lower EBITDA guidance for this year, do you still intend to maintain the 75 percent payout ratio that we saw last year? Thank you. Yes, maybe let me answer these questions. We expect also in the Q4 that the euro weakening will in reported currency have a negative impact in the growth of our fixed cost base. It depends a bit on the average exchange rates of major currency to the euro in the Q4 compared to last year. But maybe the trend is moderating, but we expect this to wait also on OpEx development. We have not changed our investment plans, especially major projects like the in sourcing on the online business is progressing as planned. We will update you at our Investor Day. And we also have now changed our plans to invest into marketing, especially digital and online marketing to drive traffic to our stores and also to our online side. However, the measures I described earlier that we have adjusted staffing levels, started to renegotiate rents commitments should have a positive impact also in the course of the Q4. And in the current market environment, we continue to look very cautiously at our other discretionary spending, something we have started to do already in the Q3 and you've seen the impact to that. So this should be supportive to the earnings development in the Q4. We are fully aware that to achieve on full year target, we need earning acceleration in the Q4. We are confident to deliver that based on OpEx development, but also importantly top line momentum, which is driven by a more retail driven quarter plus an improvement in gross margin. I think we mentioned in our speech that the Q4 will be the single quarter with the strongest gross margin progression in 2015. Today, it's too early to comment on 2016 EBITDA margin as a full year. We will give the guidance on that one as part of our analyst conference in 2016. As Claus said, we don't see any short term revision in the trading trends in our core retail markets in China and Americas, but we will give a more precise estimate on EBITDA development in 2016 also in terms of margin development in 2016 at the analyst conference. On the dividend policy, well, we don't have a dividend policy paying out 75%. This was the payout ratio for the fiscal year 2014 and '15. We are committed and we continue to be committed to a payout ratio between 60% 80%. We are fully aware that the market is following our dividend yield very closely. It's a core pillar to our equity story, and this will be clearly a major factor in our decision when we decide on our dividend proposal for the fiscal year 2015. But as I said, it's too early to give already a guidance on the dividend proposal for the current fiscal year. We first need a good finish to the fiscal year and then we will come back with a dividend proposal for the year also at the analyst conference at the beginning of 2016. Okay. No, that's fair enough. Sorry, just a follow-up on the first question. Could you possibly break out what the FX impact on OpEx was in the quarter on the growth rate? Unfortunately, we haven't done this in the past. It was dilutive. However, it's clear that we have a net impact on the profitability development is more positive given the translation impact. I think I mentioned that in the U. S. Or the Americas segmental profit, the group is benefiting from a stronger foreign currency development compared to the euro, but we don't break it down on the positive and negative development in more quantitative way. Okay. All right. Thanks very much. Thanks, Claire. Thank you very much. The next question today comes from the line of Warrick O'Kaneese from Deutsche Bank. Please ask your question. Good afternoon. I've got two questions, please. First on China and second on the U. S. On China, how confident are you that you've got the right pricing in place in China? I'm just wondering whether the pricing gap between China and Europe could be the reason for any weakness. Appreciate most of the impact is on traffic across the market. But if you just comment on your pricing policy, please? And secondly, I don't recall you giving the number of U. S. Department store doors that you sell through. Could you give some sort of indication? I'm just wondering about the profit implications from shifting that model over time to concessions. Thank you. Okay. So I would like to take both questions. And the first one is China and pricing. We already did a couple of things in order to address the pricing and the increasing travel activities from Chinese to Europe but also to Japan as well as to South Korea. We definitely increased the number of products in our assortment, which are traditionally high priced and which we then introduced into the Chinese market at more interesting and more attractive price points in order to simply increase and improve the price value offering in our Chinese stores. So you clearly see today a more important offering in exclusive items. It's rather attractive price points compared to what we had before, but also compared to our most important competitors from Europe. We will continue to investigate how far we may need to go when it comes to price alignment with regard to Japan and South Korea because both markets are right now taking substantial benefit from Chinese traveling to those countries, but also to Hong Kong in order to see how far we may need to go in order to make the offering or our offering in Chinese freestanding stores more attractive. But this is something we will do step by step. We will definitely continue to have a substantial price difference with regard to most important European markets in China. But a second step after what we did already what I described is definitely to see how far we may need to go in terms of price parity or let's say price alignment towards Japan and in South Korea. Regarding the U. S. Department store question, we are currently dealing with Macy's. We're currently dealing with Bloomingdale's. Saks is already concession, and we already have a pretty strong relationship with Lord and Taylor's or the Hudson Bay Group. In certain stores, we would anyway, let's say, with regard to certain department store operators, we will have to do anyway more with YUGO and with Boss Green and Boss Orange because the competitive environment is not yet any more there in order to defend a strong BOSS offering. With regard to Macy's, with regard to Bloomingdale's, we will definitely go concession, take responsibility for our most important brand, BOSS, in order to not only control pricing and assortment mix, but also to control the merchandise flow and customer service. This is something which has been discussed, which is going to be step by step implemented in 2016, 2017. And in the same moment, will then be paralleled by introduction of YUGO, closed interest furnishing and BOSS Green Stoltzware Assortments at wholesale level. So here, we see more or less the same scenario playing out as we saw in Germany, in Europe. And it means that we are not going to decrease the number of partnership points with our most important wholesale partners. In contrary, we're going to increase the partnership, but under the condition that we have a stronger say on how BOS is treated during the season. And presumably, the wholesale sales to those partners will decline but be compensated for by concessions? Not so sure. Not so sure, because if I if we look into the category migration in Germany with our most important wholesale partners in Germany, we don't see those declines. The next question today comes from the line of John Guy from MainFirst Bank. Please go ahead. Yes, good afternoon. Just three questions, please, for me. First of all, just following on from the U. S. Department store conversation. When I think about the dynamics around shop in shop takeovers, could you just give us some clarification in terms of average size of space and cost per square meter? I'm thinking of around 70 to 90 square meters on average at about a cost of about €1500 per square meter. And how do you think about the timing or accretion at the margin level? Is this effectively a year 2 story whereby the margin effectively becomes accretive after the initial investment? That's my first question. Maybe we'll just start with that. Well, Claus, you want to answer that? Or should I take this one? Yes. With regard to the change from wholesale to retail, we already did in a couple of countries as well as in the U. S. With our departments to our partner Saks. It's not something which you can time on to only 1 quarter because the takeover is something which is always going by store. We definitely negotiate future spaces in advance in order to make sure that we know where BOSS is sold under our control. But I would say to speak about a precise timing, I would rather speak about a 2 year period of moving from wholesale to retail, but also moving into a better understanding about the merchandise mix. It's or let's say, in concession driven stores run by Jugoboss. So here we speak about the year 2016 2017. It's always a partner related discussion. So we don't go into this new experience with several partners at the same time. We do it partner by partner. And with regard to the cost per square meter, do I did I understand right that you would like to understand how much we spend on a square meter? Sure, please. Thank you. So it's something in between €1,01500 per square meter. Okay. And the reason for obviously doing it over a 2 year period is to make sure that we don't see a significant spike in terms of investment in any given year. So you're able to effectively smooth out the overall costs and appreciate there is a timing involved. I mean within this acceleration of taking control within the U. S. Business, which I think is the right kind of strategy that you need to do over time, If you put that into conjunction with some of the other investments that you're making in omni channel at retail, etcetera. Should we think about the 2016 year as effectively your trough margin year, trough return on invested capital given the level of investment? Is that a fair assumption to make, do you think? No. As you've seen already in 2015, investments, when we talk about shop or store investments, are shifting from new stores into a higher portion with regard to renovations and a higher portion with regard to takeovers. So takeover is what we did in China with regard to franchise partners, but the takeover is also what we are doing right now or we're planning to do in the U. S. But as I tried to explain, you never take over all shop in shop spaces at the same time. 1st of all, they are not available. 2nd, also department store partners have plans for renovation and we need to integrate into those plans. And third, it always takes a moment until we are, let's say, the better merchants when it comes to operating our stores at the department store level. And this is something I try to use in order to explain that we talk here more about a 2 year experience than only a quarter or let's say a season experience. Okay. That's very clear. Thank you very much. Just one final question with regards to the inventory. If you think about Q1, I think your inventory was up 12% on a constant currency basis, then up 4% and then up 3% over the 9 months. So with regards to the specific markdown activity and clearance that you've already run through the U. S. Business, your commentary around seeing further clearance activity into up to the first half of twenty sixteen, how does that stack up with some of the traditional drivers obviously around the channel mix, which continues to improve and drive in excess of just over in excess of 100 basis points of gross margin opportunity every year, assuming that you still reach your 75% of retail sales target by 2020. Could you just talk about that dynamic, please? Thanks. Dieter, I would like to answer your inventory question. First of all, the U. S. Is definitely the market where we saw and where we've seen the most important inventory issues. We don't have any issues in Europe. And we also believe that our inventory situation in Asia, most importantly in China, covering 60 percent of our total sales is under control. I think this is important to understand. So the only inventory difficulty we saw in the U. S. Is improving, but we're also pulling out of distribution channels in the U. S, which sell only at markdown prices. So the special channels we had before are about to be closed. And so we are making sure that whatever selling activity in the off price universe was entertained in the past is more or less dying out. That's something which means that we have taken a little bit more time to clear our inventory situation in the U. S. Than we could have taken if we would have undertaken or entertained our traditional distribution channels as in the past. We clearly think that the future and the well-being of the brand sits in controlled activity. This controlled activity can be with wholesale partners as long as they respect our pricing policy and our merchandising presentation policies. But taking our experience into account with the U. S. Market, we believe that a higher share in controlled retail, be it in full price or be it in factory orders, will be to the benefit of the brand. And for that reason, please bear with us that we will take the first half of twenty sixteen as, I would say, the last season in order to get the inventory issue we had in the U. S. Under control. Okay. That's very clear. Then we could have taken if we would have undertaken or entertained all traditional distribution channels as in the past. We clearly think that the future and the well-being of the brand sits in controlled activity. This controlled activity can be with wholesale partners as long as they respect our pricing policy and our merchandising presentation policies. But taking our experience into account with the U. S. Market, we believe that a higher share in controlled retail, be it in full price or be it in factory orders, will be to the benefit of the brand. And for that reason, please bear with us that we will take the first half of twenty sixteen as, I would say, the last season in order to get the inventory issue we had in the U. S. Under control. Okay. That's very clear. But as you've also seen in the second half of this year, you're still seeing gross margin upside even though you're still dealing with the inventory issue in the U. S. Because there are other drivers? Then we could have taken if we would have undertaken or entertained all traditional distribution channels as in the past. We clearly think that the future and the well-being of the brand sits in controlled activity. This controlled activity can be with wholesale partners as long as they respect our pricing policy and our merchandising presentation policies. But taking our experience into account with the U. S. Market, we believe that a higher share in controlled retail, be it in full price or be it in factory orders, will be to the benefit of the brand. And for that reason, please bear with us that we will take the first half of twenty sixteen as, I would say, the last season in order to get the inventory issue we had in the U. S. Under control. Okay. That's very clear. But as you've also seen in the second half of this year, you're still seeing gross margin upside even though you're still dealing with the inventory issue in the U. S. Because there are other drivers? Yes. But overall, we are improving our situation. That's something which I think is important. We definitely taken into account the current situation in the U. S. And as I mentioned to you, wholesale is right now more nervous than what we expected in terms of discounting activities. But this is something which we try to manage by increasing the share of control business down the road. Thank you very much. The next question today comes from the line of Guillaume Galval from Credit Suisse. Please ask your question. Guillaume from Credit Suisse. I would have 3 quick questions. The first one is on China. I think you mentioned in the past that you've been taking shares from Armani and Zynia. So I was just wondering whether it was still the case in this difficult market. The second one is actually on cost. I mean, you replied on the OpEx. I was just wondering whether we could see further improvement on the sourcing base or whether everything was pretty much done with the Drive project about 2 or 3 years ago? And the final one, maybe sorry if I missed that, but on current trading, shall we assume that October like for like is in line with your Q4 guidance, are you slightly up? Thank you very much. Okay. So let me answer your first question regarding China. We in China, we regularly get a competition survey about how we trade against competition in the same malls. And if we take this information, which is a valid information, we continue to trade slightly better than competition due to the fact that we have taken a number of initiatives. Number 1 is making sure that our merchandise mix is more appealing. Number 2, that we are moving faster on integration of former franchise store into our own store universe and number 3 is what we're currently doing with regard to customer service and making sure that the fewer visitors we see in our stores are getting a better service than in the past. So we are working on a number of levels and try to improve the situation. But based on the information we receive from our more operators, the most important ones, we continue to gain market share even if the momentum has slightly decreased? The second question with regard to DRiV. I would say DRiV is already a thing of the past. We are today working hard on the final implementation of the retail merchandise planning and retail supplement planning software in order to make sure that our stores are benefiting from a more fine tuned assortment based on historic sellout data. This is something which will be eventually completely rolled out in 2017. The retail merchandise planning piece is already active and is already live, the retail assortment planning, which means that we clearly understand well in advance of the collection development what our stores need developed into several clusters by region is something which will help us to make sure that we, at the end of the day, will not only better control inventories and the merchandise flow in total, but also be in better stock positions when it comes to full price sell through. For that reason, DRiV, yes, has been a very important program in our most recent past, but has been already advanced and, I would say, put forward in a more sophisticated way via the retail merchandise planning and retail assortment planning procedure. We're going to speak about this in detail at the Investor Day in a couple of weeks. I'm not sure if I missed one question. I think there was a final question on the current trading trend. And I think we had a comment in the speech that we said trading trends in October confirmed our revised full year outlook. And as I said this is true as we speak. So just to make sure, which means like for like is slightly up in October? Well, we saw I said it either has to be flat or positive. And we confirm that's also for the single month of October. Please bear with us that we don't publish single month trading trends. We are aware of the importance that on the current trading trend we see in October, we are confident that we will deliver on the full year year So we So we hope to see many of you then also in person, but there will also be a webcast on the presentation. So thanks for your participation. As said anything to follow-up on, please let our Investor Relations team know and we look forward to see you then. Thank you very much. Bye bye.