Earnings Call: Q2 2015

Aug 4, 2015

Thank you for standing by, and welcome to the HUGO BOSS First Half Year Results 2015 Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to your speaker today, CEO, Mr. Marc Langer. Please go ahead, sir. Good afternoon, ladies and gentlemen, and welcome to our first half year twenty fifteen financial results presentation. Let me start my presentation with a review of financial performance in the last 6 months. Overall, group sales increased by 12% in the first half year and amounted to €1,300,000,000 Adjusted for currency effects, revenues were up 5%. In Europe, sales were 5% above the prior year level due to double digit growth in own retail. Up 11% on a currency adjusted basis, the U. K. Continued to be the region's fastest expanding core market. In Germany and France, sales momentum in own retail picked up over the course of the Both markets generated growth of 5%. Revenues in the Americas were 3% higher compared to the prior year in local currencies. Growth in own retail more than offset a low single digit decline of wholesale sales. The key U. S. Market was up 2%. Finally, Asia Pacific recorded a 3% sales improvement in currency adjusted terms. China grew 1%. Australia and Japan performed much stronger, generating growth of 13% and 6% respectively. In the Q2, momentum accelerated across all regions, particularly in Europe. Here, growth picked up in almost all markets. Sales in the Americas benefited from improvements in Canada as well as Central and Latin America, while the U. S. Markets remained lackluster. Finally, Asia recorded a better second quarter well. This was due to continued good momentum in Australia and Japan as well as takeover effects in Korea and China. In both cases, however, performance was below initial expectations as a result of the outbreak of Smerzb disease and the challenging market environment on the Chinese mainland respectively. In addition, sales development in Hong Kong deteriorated due to further weakening customer football. Excluding takeover effects, the Asian business was up 1% in the 2nd quarter. This compares to 5 percent in reported currency adjusted terms. In the first half year again, global tourism flows did shift demand between regions. For example, our business with Chinese travelers in Europe increased by more than 50% in the 1st 6 months, including a doubling of sales in Italy. Chinese customers have now become the most important foreign consumer group in our European business, overtaking visitors from Russia. However, keep in mind that our overall tourism exposure continues to be lower compared to some of the pure luxury brands with tourism accounting for less than 15% of retail sales in Europe. By distribution channel, 1st half year owned retail revenues were 9% above last year's level. Online was the best performing retail format recording a 23% improvement. The outlet channel outperformed full price distribution as a result of strong consumer demand in Asia in particular. Retail sales increases were driven by new openings and takeovers as well as comp store growth of 5%. Europe's comp store sales performance exceeded the group average, while the Americas and Asia trended in low single digit territory in the first half year. Throughout the period, increases were driven by volume growth and to a larger extent price mix improvements. The latter underlines our success in trading up consumers to higher price, higher value products in own retail. In the Q2, comp store sales growth improved to 6%. This acceleration was almost entirely fueled by the region Europe, where momentum picked up across the board. The other two regions recorded performance in line with the Q1. A better full price business meant we were able to narrow the performance gap visavis the outlet channel in the 2nd quarter. The latter, however, continued to generate increases above the group average in the Q2 as well. Supported by higher sales contribution from new space related to openings and the 2 takeovers discussed before, 2nd quarter retail sales growth amounted to 12% in currency adjusted terms. Wholesale sales declined by 2% in the 1st 6 months with a slightly more negative takeover induced performance in the Q2. And finally, the group's license business was up 10% in the period, thanks to double digit increases in eyewear and watches. Moving below the top line. First half year gross margin remained unchanged versus the prior year level of 66%. The positive mix effect from above average growth in own retail was offset by higher rebates in this channel as well as negative inventory valuation effects. The latter reflects the adjustment of inventory book values in anticipation of future discounts necessary to clear the merchandise. In the Q2, the gross profit margin declined by 20 basis points as higher rebates related to the clearance of prior season merchandise predominantly in the Americas and negative inventory valuation impact though smaller than the Q1 weighed on margin development. These factors more than offset the positive channel mix effect. First half year cost development reflects the impact from currency as well as continued investments in retail, marketing and organizational strength. Selling and distribution expenses were up 16%. In addition to a double digit increase of marketing expenses, retail expansion and refurbishments had a significant impact on cost development. The takeovers in China and South Korea as well as several large scale renovation projects executed in the first half year, many of them including at least temporary store closures diluted margins. On a like for like basis, however, retail profitability improved. G and A expenditures growth was mainly related to the ongoing strengthening of retail processes, system and competencies throughout the group, reflecting the group's continued transformation towards a strictly consumer focused business model. The other operating income and expense line in which we booked special items had a neutral impact on profit development in the 1st 6 months. A mid single digit €1,000,000 positive effect from the successful divestiture of our U. S. Production facility in Cleveland was compensated by charges related to early contract terminations with sales agents and service providers as well as organizational changes in Europe and the Americas. EBITDA before special items grew 6% to €255,000,000 resulting in a margin decline of 120 basis points in the first half year. Taking into account higher depreciation charges, group EBIT was up 3%. Net income attributable to shareholders improved 2% to €146,000,000 translating into earnings per share of €2.12 Currency translation effects contributed positively to group profit development. On a segment level, however, the impact differed by region. In Europe, negative currency effects related to the non euro denominated portion of sourcing in connection with higher sales and marketing expenses exerted market margin pressure. In the Americas, however, positive currency effects overcompensated the effects from higher rebates in particular, so that operating margin improved by 190 basis points. In Asia Pacific, finally depressed retail performance in the region's key market China, margin dilution from takeovers and investments in retail marketing drove an overall profitability decline. Let us now turn to the balance sheet. At the end of the first half year, trade net working capital was up 18% in reported terms and percent or 4% excluding exchange rate effects. This represents visibly slower growth compared to the end of the first quarter when we recorded a double digit currency adjusted increase. Nonetheless, we will be working towards further improvements in the second half year. This is particularly true for the Americas where stock levels continue to be too high. Receivables were up 1% in euro terms and down 6% in local currencies, in line with the sales trends in our wholesale business. Finally, trade payables were down 7% in currency adjusted terms reflecting a slightly different timing of production compared to the prior year. In line with our guidance, investments increased compared to the prior year and amounted to €87,000,000 in the period. Beyond regular retail openings and refurbishments, the increase was primarily a result of the 2 takeovers in Asia for which the acquisition price amounted to €21,000,000 In addition, we made a low double digit €1,000,000 investment in the relocation of our New York City showroom. Higher CapEx more than offset operating cash flow improvements, so that free cash flow declined to €73,000,000 year to date. As a consequence, net debt was slightly above the prior year level at the end of the period. Please remember that cash flow generation at HUGO BOSS is skewed towards the second half year owing to the seasonality of our business. So we do expect net debt to be virtually 0 at the end of the year. With this, let me update you on our most recent progress in the different pillars of our growth strategy, BOSS brand elevation, womenswear, own retail and omnichannel as well as global growth opportunities. Starting with the first one, the brand elevation process outlined earlier this year is progressing as planned. In own retail, we are focusing on the BOSS core brand more and more exclusively. In new and refurbished stores, floor space will be increasingly dedicated to our core brand alone. Across this offering, we are gradually elevating the product mix through a stronger emphasis on BOSS Tailored and BOSS Made to Measure. As outlined in my discussion of year to date like for like sales performance, this strategy is supporting mid single digit increases of overall average selling prices in directly operated stores. Keep in mind that this reflects an upgrade of the offering rather than simple price hikes. In wholesale, we are limiting the core brand's distribution to shop in shops. Multi brand areas, so called category floors, will be served by the other 3 brand lines going forward, substituting the previous BOSS offering. In Germany, Austria and Switzerland, this change has now been implemented across the vast majority of retail partners and many key accounts have upgraded BOSS distribution to a shop in shop format. While it is too early to report back on sell out trends at our partners, order development for upcoming seasons and sell in have been in line with our original expectations. In the seasons ahead, we will further optimize the HUGO and BOSS Green collections in order to compensate for the planned discontinuation of certain entry price points in the BOSS core brand. At the same time, we will be expanding the strategy to the rest of Europe with the delivery of the pre spring 2016 collection later this year. In Women's Wear, our second growth pillar, we can report back on a successful first half year as well. Sales of our overall Women's Wear business were up 5% currency adjusted in the 1st 6 months of 2015. While BOSS Orange and HUGO continued to suffer from the loss of retail space following our new performance strategy, BOSS continued to outperform. Sales of our core brand, which accounts for around 65% of total womenswear sales grew 12% in the first half year. This reflects the strength of the brand in tailored products in particular. At our upcoming September fashion show in New York, Jason Wu will take the upgrade and refinement of our collections one step further. At the same time, we are strengthening and expanding our Essentials business. The new Fundamentals collection collection addresses the needs of the modern businesswoman looking for classic timeless pieces she can flexibly combine with the seasonal collections. Visiting at HUGO BOSS store today will also highlight the growing focus on shoes and accessories. As part of our fall 2015 collection, we launched a new iconic bag, the BOSS Bespoke Bag. Capitalizing on Made in Italy and using exquisite materials, it merges the menswear DNA of BOSS with more subtle femininity. From September onwards, customers will be able to personalize their bag, selecting from different colors and materials according to their own truly bespoke needs. While shoes and accessories are small categories for us at the moment accounting for around 10% of womenswear sales, we acknowledge the importance when it comes to defining brand identity and driving desirability. As a result, we are allocating more retail space to shoes and handbags. This is particularly true for 30 ambassador stores worldwide among them Wheaton Street and Stone Square in London as well as our newly refurbished store in Frankfurt. Overall, we invested almost €20,000,000 in the renovation of existing stores in the first half year. In addition, we added almost 7,000 square meters of retail space in the first half year via new openings and takeovers, representing a 4% increase compared to the end of 2014. Europe was a focus region in terms of new openings. Important projects included the opening of a travel retail store at Milan Airport, the expansion of our retail presence in Moscow and the opening of additional shop in shops at Galeries Lafayette in France. Takeovers related primarily to our former franchise businesses in Korea and China. Looking out to the rest of the year, we now expect to open around 65 new stores and shop in shops in 2015. Among the additional opportunities identified most recently is the relocation of our recent street store in London to another building close by. Doing so will more than double net selling space to above 800 square meters in a better accessible, less complicated store layout. Finally, we have reached an agreement with El Palacio del Hierro, one of the leading department stores in Mexico to take over 14 HUGO BOSS shop in shops in the next month. Beyond physical retailing, we have made the implementation of an omnichannel business model one of the cornerstones of the group's strategy. In this context, we are encouraged by the pickup of momentum in our online business. In the first half year, online sales were up 23% in currency adjusted terms. In the 2nd quarter alone, the increase amounted to 34%. This performance is a result of improvements we have implemented since around the same time last year. Based on the demand wear platform now fully controlled by us directly, we upgraded the store in terms of its look and feel, features and usability. The relaunch of hugoboss.com and the now far more performance driven approach to digital communication has driven a strong double digit visitor increase. In addition, average order values improved at a high single digit rate, underlining our success in upgrading product presentation and facilitating cross selling, for example, through the promotion of entire campaign books. At the same time, the preparation for the rollout of omnichannel is progressing as planned. As a reminder, we will in source online fulfillment in the first half of twenty sixteen, a key prerequisite to offer consumers a seamless brand and shopping experience across all distribution channels. Over the next few months, we will launch several innovations supporting consistent customer data management and personalized service, driven directly by the store personnel. Expect a comprehensive update on these initiatives at our Investor Day on November 24. Ladies and gentlemen, before finishing with our financial outlook, let me give you some insights into regional trading. Based on the recent acceleration of trends in Europe, we expect the region to grow solidly also in the second half year. Ongoing strength in the U. K. As well as improvements in Germany and France in particular should drive sales. In addition to the recovery of domestic demand, increased travel flows, especially from Asia will continue to support performance. In the Americas, we forecast trends remain broadly similar to the first half year's level. A continuously promotional retail environment has made us take a very cautious approach to U. S. Wholesale. As a result, we are rather limiting sell ins where necessary in order to improve full price sell through. At the same time, we expect retail performance to start benefiting more significantly from merchandising and operational improvement only next year. Finally, we forecast mix trends in Asia to continue. While Australia and also Japan should continue to perform well, we do not project the market environment in China and Hong Kong to recover anytime soon. As a result, we focus on building brand strength, in particular in men's formalwear, on upgrading our retail network and on improving retail execution. The latter includes the strengthening of our retail management team, merchandising changes and a stronger focus on CRM. Finally, we expect some stimulus from the collection upgrade where we have just implemented in China offering higher value products at unchanged price points. To grow at a mid single digit rate on a currency adjusted basis in 2015. Thanks to positive currency translation effects, increases will be higher in euro terms. While wholesale sales are forecasted to decline slightly, our own retail business will grow stronger than the group average, thanks to productivity improvement and new space. Based on 2nd quarter performance and current trading, we have even raised our outlook for retail comp store sales growth to mid single digit. Nonetheless, our operating profit forecast remains unchanged. Adjusted EBITDA is expected Gross margin is expected to improve Gross margin is expected to improve due to better channel mix driven by solid increases in the second half year. However, the flat gross margin developed in the 1st 6 months means the full year increase will be lower compared to the original expectations. We will also continue to invest in future growth. As a consequence of the upgrade and expansion of our own retail network, selling expenditures will increase more sharply than sales. In addition, marketing expenditures are expected to grow over proportionally. Finally, G and A cost development will reflect investments in people and systems supporting the group's ongoing transformation to a consumer centric business model. Based on our increased store opening outlook as well as updated exchange rate assumptions, we have also upped our CapEx forecast. Investments will amount to between €220,000,000 €240,000,000 in 2015 with the majority being related to on retail expansion, refurbishments and takeovers. Omnichannel investments, the expansion of our production facility in Turkey and the relocation of our U. S. Headquarters within New York City represent other important investment areas. In the first half year, we faced a difficult operating environment. In Europe, the apparel industry has hardly benefited from the overall upswing in private consumption. In the Americas, industry trends have been mixed throughout the period. In China and Hong Kong, we have not seen light at the end of the tunnel yet. Given these challenging market conditions, we can be satisfied with what we achieved. First half year financial results performance is in line with our full year expectations, so our confidence to reach 2015 targets has grown further. However, in an industry which is growing at a fast lower pace compared to historical levels at least at the moment, our operating environment has turned even more volatile and competitive. This should not make us focus on short sighted sales and profit maximization. We are convinced that our company's future rather depends on maturing growth potentials for the long term. This is exactly what we are doing in the different areas of our strategy even though this clearly comes at a cost. Nonetheless, the progress we are making in all of them gives us confidence that Hugo Boss will continue to stand for the attribute with which consumers associate our brand first success. I will now be happy to answer your question. Thank you. And your first question comes from the line of Antoine Belch. Please ask your question. Yes. Good afternoon. It's Antoine Belge at HSBC. Three questions if I may. First of all, I think the big element in Q2 was the acceleration in Europe. Having said that, it seems that the ready to wear market didn't really improve. So what did you do perhaps better in Q2 than you did in Q1? Second question, I think there were a lot of mention about markdowns. Is it possible to maybe have an idea of what type of products and maybe which region were involved? And if you think that now ended the quarter with a cleaner inventory situation? And maybe what makes you confident that we should see less markdown in the second half? And finally, on your comments regarding Asian margin, it seems that the consolidation of the Korean business and also the most recent takeout in China is not really going as planned. I understand that there are some external factors as well. So here what can reasonably be done in the second half to try to improve that? Thank you. Thank you, Antoine. I think there's not one silver bullet, which set our performance in Europe apart from the Q1. It was clearly an acceleration where this our performance in the Q1. And I think 2 of the elements that we also highlighted in our explanation have been key to that. 1 is the continuous effort that we were able to up trade our consumers to higher price points on larger baskets and on retail network. It's a trend that we have been very much focusing on due to improved better in store execution, staff training, better planning and buying process. And this is clearly paying off that in particular also to a domestic consumer, we are able to have a bigger higher priced basket with these consumers. And this gives us of course also the confidence to rigorously pursue this core element of our strategy to elevate the BOSS brand to higher price points. Compared to brands which are even clearly operating at different price points in HUGO BOSS, we clearly also benefited I highlighted 6 Chinese consumers from non domestic tourism. This probably has especially benefited our European businesses and especially in these markets where we are seeing above average tourism for example in France, in parts of Italy, but also in the U. K. Maybe to some expense to the U. S. Operation where the strength in the U. S. Dollar might have driven some visitors rather to the European markets and not to the North American ones. When it comes to rebates and markdowns, I think we shared with you the impact on gross margin on the Q1. Clearly, we have been dealing with situation with excessive inventory, in particular in North America, but to a lesser extent also in Asia where sales performance in China and Hong Kong clearly has been below our initial expectation over the last 12 months. We have started to address that with a more cautious buying plan for these two markets almost 12 months ago. We still have in particular in the U. S. An overstock situation when it comes to fallwinter merchandise from 2014, which we are now planning to clear in the brand equity, but also margin optimized level over the next 6 to 9 months. Clearly, here we will benefit from a very professional and well distributed factory outlet capacity that we enjoy especially in the U. S. Market. Given that we have seen already some markdowns and rebates in the second half of twenty fourteen, we expect that the margin dilutive impact on gross margin from rebates trends we have seen the 6 1st 6 months will be far more subdued in the second half of the year. On the Asian market outlook, I think that was your third question. We tried to phrase it no reliable measurement yet on how far it is until the end of the tunnel. Current trends also into the Q3 continues to make us cautious on the trading trends that we see from Mainland China in particular from the northern part of the country, but also Hong Kong, which has deteriorated in terms of footfall in the Q2, give us does not give us at this moment the confidence to announce more positive market outlook at the time. Maybe we will be able in the beginning of November after the Q3 performance to see whether we have seen some improvement versus a weak comparison base. But keep in mind that for the last 2 years in China in particular a weak former year reference base was not necessarily a strong reason to bet on improvement in the current fiscal. So against this background, we continue to be cautious in our market assumption especially on Mainland China and Hong Kong. Sorry. Maybe a follow-up with regards to the takeover that you did. I mean, is there any action that could be taken try to mitigate the impact? Well, in China, please keep in mind that the last remaining franchise partner was comparatively small. It represented just 5% on our Chinese business. Clearly, we see a significant benefit now to have 100% control on all B2C activities in China. And as we have done with the JV takeover a year ago where we have brought expertise from our 100% control business to the former JV operation, we are in the process to do the same with our large franchise partner. But the impact given the size of the business we have acquired in the Q1, it's too small to have a significant impact for the remainder of the year. Thank you. Thank you, Antoine. Thank you. Your next question comes from the line of Chiara Battistini, JPMorgan London. Please ask your question. Hello, good afternoon. Thank you for taking my questions. First question on again on Asia and the profitability. I calculate in Q2 the margin was on 700 basis points or a bit more. So how should we be thinking about the profitability for the second half sort of a similar drag or easing at least? Then on the admin costs, I've noted an admin cost in Q2 up 20%, if you could please comment on that? And finally on the increased openings guidance from 50% to 65%, if you could tell us where those will be more focused on? Thank you. Yes. Thank you, Kiara. Well, the decline in profitability, which continued or accelerated for our Asia Pacific business was driven by the drag in the Greater China performance. So on the one hand, we shared with you that we have now seen continuous situation of negative like for likes on the mainland, which cannot be compensated by any other means to that given that there's no fixed cost adjustment that will compensate for that. But we also had an unfortunate mix effect to that that we have with the expansion with a larger more expensive in terms of depreciation and rental cost flagship stores in Shanghai and Hong Kong, the fixed cost base from these stores has grown over proportionally. Last but not least, the takeover that was basically only became fully effective in the Q2 had also a dilutive impact because the majority of our business relationship with our former franchise partner was already captured as part of the wholesale business. And the 4th element, I think we mentioned that as part of the commentary is that we in this difficult market environment, we have not released our marketing and promotional activities. We have rather increased especially CRM activities to drive customers to our store. Unfortunately, it didn't pay off at least domestically to the degree that we have initially hoped for. You might argue that some of this interest and awareness of the brand we created domestically in China paid off with these Chinese consumers coming to Europe or shopping outside of the country. But you're right in your observation that in the current circumstances, we have seen a significant decline, especially in local currencies in the mainland China's performance. The admin cost increase in the Q2 is predominantly driven by further expansion of our global footprint. So we have established new sales subsidiaries. I think last time we already the bulk of its investments in the which clearly has the bulk of its investments in the front end, so retail related expenses, but they also required a buildup of back of house facilities, finance, HR and other parts of that. So expansion weighted on that second element, which we also explained in part of our guidance, we continue to have an FX impact on also on the fixed cost structure, given the size of our research and development activities based in Switzerland. Last element is related to the build up of resources in terms of people, but also systems as we prepare for taking our omnichannel activities in house. Until we and it's a trend we expect to continue also in the second half of the year. We will only discontinue our service payment to our current partner as we take this business in house in the first half year of twenty sixteen. Until then, we will have an increasing situation of double running costs building up the omni channel capabilities in house on the logistics side, but also in other supporting activities, which will only become neutral as we discontinue the service payments to our former partner. Does that answer you sorry, what's the third one? And the last one was on the number of opening the amendment. Yes. Exactly. Well, on the expense, there's no as we have done in the previous year, as we have no full visibility on the exact timing on openings of projects whether we are under discussion at the beginning of the year, given that we're now at the beginning of August, we have secured some of these projects, which we are still under negotiation where we're in pitch situation with our competitors. The distribution of the additional €15,000,000 versus the €15,000,000 that we guided previously, it's not much changed. The biggest part of the expansion continues to be in Europe. One example and I think that we are quite proud of is the relocation of our store in London on Regent Street, which will already be opening this year. And this will be counted as one closure and one opening, but the new store that we'll open in the Q4 will almost be in double in size to our current location. That was for example one store that we did not include in our initial guidance. Great. Perfect. Thank you very much. Thanks, Kia. Thank you. Your next question comes from the line of Thomas Chauvet, Citigroup London. Please ask your question. Good afternoon, Marc. Two questions please. The first one on wholesale the other on the U. S. On wholesale remember a few years ago you were indicating that the overall wholesale EBIT margin was generally higher than retail. Given the major change you've done to the wholesale distribution strategy, what would you expect directionally to be the impact on your wholesale margin from substituting black to going green from ending the capture good business etcetera? And on the U. S, what is driving the Q2 EBITDA margin improvement? I think it's 2 50 bps more or less given the markdown activity you've mentioned earlier. I mean, was there some non recurring costs or some other one offs to explain that swing? Thank you. Yeah. Let me start with the U. S. Margin improvement. Unfortunately, the impact on inventory write downs and rebates was most profound sales for us in the U. S. Market. And to a lesser extent, we are not through yet in the U. S. Market in particular. There might be still some smaller implication also in the second half of the year, but not to the same size. Why is this more than overcompensated when it comes to segmental profitability? It's due to the exchange rate effect that we discussed. So in euro terms, we have clearly benefited from the euro weakness over the last 6 months compared to the previous year, which more than overcompensated by this negative factor. So underlying and we try to be very clear on that one, weak like for like development, which is below group average, a continuous highly promotional environment, which we can't fully stay immune to, it hasn't in local currency led to decline in profitability in the U. S. Market, which was just for all the technical purpose consequences from the weakening of the euro versus the euro dollar has been over compensated. On your question on wholesale margin, we always tried and I will also do it as a part of this call to get into a discussion wholesale with this retail margin on whatever level we would like to discuss that. We manage these as 2 independent business models and this is also how we are now working very closely with our wholesale partners to upgrade the BOSS execution. And based on the initial feedback from our core European markets, I mentioned Switzerland, Germany and Austria, we are very confident that we will see a quick pickup as we move to a broader territory that wholesale partners will see that a strong focus on BOSS in a branded area will be beneficial not only for us, but also for them as these areas will allow them higher sales densities, higher baskets and of course a stronger brand equity, a stronger message for the end consumer. And this clearly with some additional works needed will also come to the U. S. Where after a rough and rocky start, we now start to see progress with our shop in shop presence at Saks. Over the next quarters, I do expect that we will further drive our discussion with other wholesale partners to follow the Saks example. We have given you today an example for Mexico where we have added another 14 spaces where we took the ultimate step take this business now as a concession area under our own control. In terms of profitability on the category floors, replacing a BOSS suit with a HUGO suit or replacing a BOSS jeans or BOSS wear product with a green product, As you know, our gross margin on these products whether they carry the green label or the BOSS label is not really relevant. If we are able to maintain significant shift from the strategy in our pure wholesale profitability. Thank you. Thanks, Thomas. Thank you. Your next question comes from the line of Jurgen Kolb, Kepler Chevre. Please ask your question. Thank you very much. Coming back to the wholesale question or wholesale point again. I think in the quarter release you talked about plans to work closer again with the department store operators. And what you just mentioned Mark indicates or at least gives us the implication as if you becoming more optimistic now for the wholesale business going forward 2016, 2017 maybe that this is not going to rather be a stable business, but rather growing business. Would that be first of all the right observation from your comments? Well on wholesale, we always give projection on what we do see in terms of order intake. And clearly our full year outlook includes now not only order intake for the pre spring, but also the spring 2016 deliveries. As we haven't changed our top line expectation for the full year and also continue to give you a slightly negative wholesale development for full year basically in line with the 1st 6 months, you can see that we have not been positively surprised in terms of wholesale trends. And in particular in the U. S. Market and you have seen trading statements in some of our major European partners, It's a cutthroat competition, which is predominantly done on pricing on promotion. And as you know that's a field in to protect our brand equity and our retail performance, we are less and less willing to participate. So we continue to see a very have a very cautious outlook on wholesale in particular. Where needed, we will and where we are capable, we take over control into our own hands. These takeovers are never easy as we now learned with an unfortunate timing in Korea where the breakout of the Mars disease clearly has slowed down some of our initial plans. So walk before you run, we will continue to pursue opportunities of takeovers wherever they arise. But I continue to take also on the midterm perspective a rather cautious outlook on overall sales momentum for HUGO BOSS in menswear in our core business and businesses. We do expect over proportion growth in women's wear. We expect to grow at least with the underlying category where we have continued operations. But if these businesses are flat or for example like in Switzerland are negative, we will not be growing at mid- or high single digit rates. So we just need to be realistic on the momentum that we can generate on the wholesale side of our business. Okay. Very understood. And second one on your online business, which obviously saw a nice boost in the Q2. Maybe additional comment as to what really drove that increase maybe also in terms of conversion and what you've seen on top of what you already mentioned? I think to sum it up, there were 2 things. One is once you're on the side, it's the quality of execution. So we have clearly learned our lessons to be far more proficient and smart on driving basket size, 1 of the key drivers to have bigger values per transaction was our ability to sell consumers total looks. So people are not coming to our website to buy just a pair of socks or a white shirt. Increasingly, we are successful to sell them a complete outfit. And here I come to the initial element. Of course, there are multiple online pages competing for consumer awareness. Here with our marketing activities with better marketing of consumers, we have been able to drive visitor numbers to our stores. But it's not only people who are browsing around, but high quality visitors that we will have a better chance to convert them into shoppers. So basically, if you go through the value chain, it's the higher number of visitors, better conversion rate, better basket. And one feature that we explained to you, I think, a couple of months ago, which is now nicely being picked up by consumers is the feature of in store availability. It's not available as we know in all markets, but in these markets where we have this potential now that consumers will discover a product they are interested in. And even if they are reluctant to buy it now, they now have a possibility to reserve this product in our Frankfurt, Berlin or London store. So clearly, you can see this one just one example how the brand is now increasingly combining these two assets and strength that we have, which is unique and superior to online pure plays. Okay. Understood. And last one, housekeeping 1 depreciation in the Q2 up I think 22% or so. Was that due to the takeover of Korea and China or anything specific there? No. To my knowledge, we didn't have any depreciation charge. So that is just the consequence on the expansion on investments in the prior year in particular in the retail field. But there were no special write offs or anything related to the takeover of these business. Is. Very good. Okay. Thanks very much. Thanks, Jorgen. Thank you. Your next question comes from the line of Claire Hauff, RBS London. Please ask your question. It should be RBC London, but hi everyone. Three questions please as well. The first one, I think you mentioned in your opening remarks that the price had had a bigger impact on the like for like in the quarter. So just wondering if you could quantify the split between volume and value from the like for like figure please? And second question, I think you'd said previously that you don't gain operating leverage on the OpEx space while like for likes are below mid single digit. So just wondering given the new like for like guidance for the year, whether you could give some color on OpEx and margin expectations for the second half? I appreciate the gross margin will drag on margins this year, but can we expect any incremental leverage over that cost base in the second half? And then 3rd and final question on Womenswear. Just wondering if you could give any extra color on the performance by region. Just wondering whether the positive reception that you're seeing to Jason Wu has been seen across all regions really. That would be great. Thank you. Yes. Let me start with the price and volume one. Since we are not selling the same Coca Cola bottle year after year, it's sometimes difficult to say, okay, if you compare spring summer 2015 performance to 2014, To what extent is the basket that the women or the men are buying this year driven because you have bought a slightly more expensive suit? Or did he buy more suits? Or did he buy a shirt and a tire with that? In general, we have seen that the average selling prices has increased. Even so we have not increased overall retail prices in core market. So in a way, I would call it a volume effect, because we have been able to increase units per transaction and we have been able to trade people up to higher price points. And this is both demand and supply driven. We are like in previous seasons, we in particular in Europe, we have increased the average sell in price to our offering, which has been well received by the end consumer. And maybe to comment in this context on the women's wear part, you have seen that women's wear business at Jugoboss is still far more focused on the European business. So we the womenswear business even though it was growing overall in line with the menswear business and BOSS womenswear growing double digit. The most important markets are euro or pound based. So we have seen a slightly lower translation impact due to the fact that it's Lexus Post or coming from a lower base in Asia and Americas. However, in particular, Jason's collection that's predominantly sold via branded spaces in our bigger stores at the department stores has seen a very strong reception across all three markets. So we have seen stronger than group average growth of women's wear in all three regions that we operate. However, the impact coming from the biggest base in Europe is the most important one. On the OpEx leverage, as I think there was an earlier question on OpEx expectation for the remainder of the year. As I said, the from takeovers there will be now a higher base of operating costs from these expanded networks, which are dilutive at least in the 1st 12 months of operation. There will be until the first half year of twenty sixteen a double increasingly double cost of building up own online fulfillment capacities where we still are paying to Bertelsmann a service fee for the outsource part of that. And also on the marketing spendings beyond the pure SG and A expenses, we do expect an over proportional increase. So there will be this year lower than historical OpEx leverage to our numbers. We do not see the necessity to revise our statement that in general the company needs a mid single digit like for like improvement to become margin accretive. However, in the current fiscal year, this general rule is not true, just as the fact that we are in a phase of stronger investment also in our infrastructure, plus the fact that the like for like growth is pretty much driven by our factory outlet, so off price channel compared to our full price stores. So unfortunately, our full price stores are not on the strong 5% like for like development that we described for the total group. Okay, great. Thank you. Thanks, Claire. So thank you for your participation in today's call. We will be happy to speak to you again later after our Q3 results. And let me remind you again on our Investor Day, which we will this time host in our company headquarter in Germany on November 24. We wish you all a nice summer break and we're looking forward to see you soon. Bye bye.