Earnings Call: Q1 2015

May 6, 2015

You for standing by and welcome to the HUGO BOSS First Quarter Results 2015 Conference. 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 speakers today, Mr. Klaus Dietrich Glaes, CEO and Mr. Marc Langer, CFO. Mr. Langer, please go ahead. Thank you very much and good afternoon, ladies and gentlemen, and welcome to the presentation of our Q1 results 2015. Together with Claus, I will be happy to update you on the development of the group in the 1st 3 months and our plans for the rest of the year. Let us start with a recap of Q1 financial performance. In line with our expectations outlined in mid March, performance in the Q1 was burdened by a continuously difficult market environment in many parts of the world. As a result, top and bottom line development was below our full year projections. Supported by positive currency translation effects, group sales increased 9% in the first quarter and reached €668,000,000 On a currency adjusted basis, they were up 3%. Operating profit remained virtually unchanged compared to the prior year as a result of only moderate underlying top line growth, stable gross margin development and investments in long term sustainable growth. Let us now take a closer look at quarterly sales development by region. Sales in Europe grew 3% in local currencies. This was driven by high single digit increases in own retail, whereas wholesale remained flat. The U. K. And Germany were the best performing major markets with revenues climbing 11% and 5% excluding currency effects respectively. France, where performance had decelerated in the later part of 2014 already, reported a sales increase of 2 rationalizations resulted in a 3% sales decline. The smaller markets saw a mixed development with solid increases in Spain, the Nordics and Russia contrasting with declines in Italy and Switzerland. In the Americas, revenues increased 2% on a currency adjusted basis. The U. S. Market alone was up 4%, also still affected by a promotional market environment at retail. While Canada grew solidly, revenues in Central and South America declined at a double digit rate. In Asia, group sales were 1% higher than the prior year in local currencies. In China, revenues decreased 3% as a further deceleration over economic growth as well as a challenging industry environment affected our business. Unchanged to prior quarters, Hong Kong performed better than the Mainland despite the overall market deterioration. In the rest of the region, Oceania grew at a double digit rate and also Japan expanded sales against a tough prior year comparison base. By distribution channel, the first quarter retail were up 6% on a currency adjusted basis. On a comparable store basis, that means adjusting for the effect of retail expansion, sales were 3% higher in local currencies. This represents an acceleration compared to the end of 2014 driven by all three regions against an even tougher prior year comparison base. While traffic levels in our Full Price Retail business declined year over year in particular in Europe and China, conversion rates and above all basket sizes developed positively. The latter underlines our success in trading up consumers to higher price points. Nonetheless, growth was higher in the outlet channel compared to the full price distribution. By region, comp store sales development was very consistent with Asia being only slightly weaker compared to Europe and the Americas. Wholesale sales were down 2% after adjustment for currency effects in line with our expectations for the full year. This is indicative of cautious ordering by some of our department stores partners as well as ongoing market consolidation among smaller partners, which in most part was a predominant factor. In addition, takeovers had a negative impact on sales in this distribution channel. Last but not least, our license business was up 6% compared to the prior year driven by solid increases in Eyewear and Watches. Moving below the top line. The group gross profit margin increased by 10 basis points to 65.5%. This improvement was generated against a tough prior year comparison base as gross margin in the prior year quarter had benefited from a sharp reduction of rebates in own retail in particular. In this year's quarters, rebates were a neutral factor for gross margin development as the negative mix effect from above average growth in outlets was offset by lower rebates in this distribution channel. Instead gross margin benefited from a positive overall distribution channel mix. However, this was partly offset by a negative inventory valuation effect reflecting some write downs following the recent buildup of inventories. Negative currency translation effects were the single largest factor behind the operating expense increase in the Q1. In addition, retail costs increased due to expansion in higher rental expenditures, which we are not able to fully offset by sales productivity improvements. Including a double digit increase of marketing expenses, selling and distribution expenses were up 14% year to date. G and A expenses grew and growth amounted to 12%. This primarily reflects higher costs related to our R and D operations in Switzerland, the expansion into new markets such as Korea as well as investments taken to strengthen our organization in strategic focus. This includes omnichannel in particular. As a result, EBITDA before special items remained stable year on year reaching 100 and €32,000,000 This reflects a margin decline of 170 basis points to 19.7%. Including a negative swing in special items and higher depreciation charges, group EBIT decreased by 5% to €103,000,000 Turning to the non operational items of the P and L. The group's net financial results amounted to negative €5,000,000 affected by unhedged currency movements. The group's tax rate remained stable at 23%, so that net income attributable to shareholders was down 6% to €76,000,000 translating into earnings per share of €1.10 In the Q1 of 2015, the explanatory power of our segment reporting has been limited by currency effects, significantly influencing the single regions, while being an only minor factor on group level. The Americas and Asia benefited from currency translation effects, whereas Europe suffered from the share of sourcing denominated in currencies other than the euro. As a result, operating margin declined by 2 60 basis points in Europe. In addition to currency, higher selling and distribution expenditures played a role here. In contrast, operating margin improved by 140 basis points in the Americas, supported by significantly positive translation effects in the gross profit margin. In Asia Pacific, finally higher retail expenditures partly offset currency driven gross profit margin improvements, so that operating margin advanced 30 basis points. Let us now turn to the balance sheet. At the end of March, trade net working capital was primarily driven by a higher inventory position. Inventories increased by 25 percent to €539,000,000 Excluding currency effects, the increase still amounted to 12% driven by retail expansion as well as the slower than expected on retail sell through in the last 6 particular in particular in the second half of the year. In doing so, we built on the strength of our outlet network, enabling clearance of excess merchandise in a margin protective way. Just to finish my discussion on working capital, receivables were down 3% on a currency adjusted basis similar to sales development and wholesale. Finally, trade payables were up 1%. In line with our guidance also for the full increased significantly in the Q1 almost doubling compared to the prior year levels. This was driven by higher own retail expenditures including the takeover of our Greencastle store base as well as the relocation of our New York showroom. As a result, free cash flow turned negative in the Q1, so that net debt increased to €43,000,000 While net debt will be higher than this at the end of the next quarter, in line with the seasonality of our business and following the dividend payment, we are confident in the achievement of a positive net cash position at the end of the year. I will now hand over to Claus, who will discuss the strategic initiatives we are working on at the moment as well as our financial outlook for 2015. Thank you, Marc. Good afternoon, ladies and gentlemen. Let me take the opportunity to update you on the most recent developments within the key areas of our 2020 growth strategy. As a quick reminder, our strategy rests on elevating the BOSS core brand, leveraging our potential in womenswear, building omni channel to drive growth in retail online and offline as well as exploiting the group's opportunities in underpenetrated markets. All of this will be supported by the maximization of our existing operational strength. Starting with the 1st pillar, the changes we have outlined for our brand portfolio are progressing as planned. However, before I go into the detail, let me correct some misperceptions. What we do is not about turning BOSS into a pure luxury brand. It's not about simply raising prices. And it's not about leading entry price points and the wholesale distribution to some of our competitors. It is rather about elevating BOSS in order to exploit the brand's potential at the high end of the market and to make sure the brand's presentation is consistent across all geographies and all distribution channels. As a result, we are elevating the BOSS offer in terms of product and price including the discontinuation of some entry price points, which have historically been important in price sensitive wholesale markets such as the U. S. And Germany. Still, we are not willing to simply leave the wholesale business to others. Instead, we're adjusting our approach in Europe. We've just initiated the substitution of BOSS with YUGO and BOSS Green in multi brand category spaces. And this means selling spaces where we have little opportunity to brand our offering. From June onwards, this change will be visible at key wholesale partners in Germany, Switzerland and Austria. And by the end of the year, the new YUGO Business Assortment and BOSS Green sportswear offerings will be available to consumers European wide. The progressive fashion statement and contemporary appeal of YUGO as well as its superior price value relationships have resulted in a strong reception by key wholesale The same is true for BOSGREN in the sportswear category with which we are targeting the growing number of consumers looking for a fusion of fashion lifestyle and performance in their leisurewear outfits. Trading up the BOSS brand in Europe and the Americas is also an important element of our global pricing strategy. Industry wide, global price gaps have widened most recently as a result of the depreciation of the euro against most other currencies adding to a global price difference that is already larger in apparel than for example in luxury today. While we have not seen any uptick in gray market sales of apparel imports in our business in the last few months, we acknowledge the growing importance of tourism and the increased global price transparency the Internet provides. Both factors contribute to the need to narrow price gaps in between the regions. We're doing so not only by elevating Boston Europe and in the Americas, but also by upgrading our offering in China. Effective with the fallwinter2015 collection coming to our stores in late summer, we will offer better qualities at unchanged price points, hence further improving the brand's favorable value proposition as well as its credibility in premium and luxury. This move will be followed by further gradual refinements of our global pricing architecture over the next few years. In doing so, we will focus on adjusting collection frameworks rather than straight price changes. At the same time, however, we don't see a need to introduce globally uniform prices anytime soon. Instead, we are convinced that the majority of our end consumers will prefer to buy apparel in their home market, 1st and foremost owing to the importance of sizing and fitting and a preference for being served in their own language. In Womenswear, BOSS brand momentum remained strong. A year ago, the excitement around Artistic Director Jason Wu translated in a visible pickup of sales even before his first collection hit the stores. The collections we have introduced since then, our fashion shows and campaigns have all contributed to a step up in awareness and brand recognition that is driving new consumers to our stores. In the first 3 months of the year, BOSS Womenswear sales increased by 11% in currency adjusted terms, in line with our target of double digit growth. Strong demand by wholesale partners, in particular in the U. S, added to robust performance in own retail. Our overall women's wear business, however, grew by just 4% in the quarter, reflecting declines in Boss Orange, driven by a reduced space allocation in our own retail channel. Speaking of own retail, we opened 21 new locations in the Q1 2015, including 12 shop in shops. Most importantly, we gained further space at 2 of the leading department stores in France and Spain Galle Lafayette and El Corte Ingles. Taking into account an additional 28 takeovers and 30 closings, this meant we operated 10 60 own retail points of sale at the end of this period. Closures related predominantly to small shop in shops accounting for more than half of the total 30. This reflects some rationalization of our department store presence in the Benelux in particular. In the remainder of the year, we expect some more closures to follow. Often these closures will be related to relocations. To pick just one example, the recent store closure in Chengdu in China reflects a relocation from the landlord landmark complex to a bigger and better located store in the newly built Taicoo Li Mall. And this will happen more often in the future in China. Takeovers related to South Korea and China. In Korea, we have assumed direct control of the entire HUGO BOSS business from our former franchise partner. Effective March 1, we took over 17 freestanding stores. This includes a location on Biote Reneo Drive, the country's most luxurious shopping street. As a trendsetter in terms of culture and fashion in the Asia Pacific region, Korea has become an important tourist destination not least for Chinese travelers. We count for this with the direct management of our presence in 6 duty free stores in addition considering the importance of this retail format in South Korea. In China, we have taken over the last remaining 21 franchise stores in the market on April 1, following from our joint venture buyout in 2014, the harmonization of our distribution structure will add to the consistency of our brand and retail presentation. Retail will remain a key pillar of growth also going forward. However, this means much more than just store expansion and takeovers. Retail is all about like for like growth and that's what we are focusing on. One important means to this is online and omnichannel. In this context, we are encouraged by the pickup in online sales growth reaching 14% in the quarter. Performance benefited from the innovations we implemented last year. In particular, traffic was boosted by the launch or the relaunch of hugoboss.com implemented last September. The close integration of commercial and editorial content coupled with a far more transactional focus of our digital marketing activities resulted in a strong double digit increase in site visitors. In 2015, we will further enhance hugoboss.com. In the second half of the year, we will launch my hugoboss.com offering various options to personalize the online experience. In addition, we will introduce a new photo concept and text concept upgrading the look and feel of product presentation. We are hence confident we will have an increasingly stronger online platform to build upon with the rollout of omnichannel services coming in 20 16. Before turning to our financial outlook, let me give you some more flavor on regional trends. In Europe, the market environment remained challenging as Mark outlined earlier. Trends improved only gradually between the end of the prior year and the Q1 of 2015. While private consumption seems to improve in many in the industry has now declined for 7 months in a row according to retail panels and market research. While we are obviously doing much better than that, a tough prior year comparison base as well as the overall market backdrop affected our regional performance the last 6 months. Keep in mind as well that tourism is less of a tailwind for us compared to others given that the vast majority of our European business is with domestic customers. In the Americas, we remain committed to protecting brand equity and upgrading our presentation amidst a continuously promotional apparel retail environment in the U. S. In our on improving the quality of retail execution as well as the operational backbone. The new management team has initiated several projects in this regard, which we expect to yield positive results over the next few quarters. This includes for example, the rollout of a new cash register system across our stores as well as a comprehensive technical upgrade of the regional distribution center in Savannah. Finally, the Asian region shows mixed picture. In Australia, Japan and most of the region's smaller markets, we enjoy good momentum. In China, however, declining store traffic continues to be a drag on our performance. We attribute this to the further weakening of overall economic trends and ongoing oversupply of retail space as well as the deterioration and social acceptance of premium and luxury products, all factors which are unlikely to disappear anytime soon. In contrast, we are reasonably satisfied with our performance in Hong Kong where our new flagships in Central and on Canton Road ramp up well in a market environment, which has clearly turned more difficult as of late. To sum up, group sales are expected to grow atamidsingledigit 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. This outlook is based on the assumption of low single digit comp store sales growth, reflecting the currently challenging market environment I just outlined and the revenue contribution from NewSpace. We expect the letter to accelerate compared to Q1 levels predominantly as a result of the 2 takeovers in Asia. Adjusted EBITDA is expected to grow by 5% to 7% in reported terms. The improvement will be supported by gross margin increases, thanks to channel mix and tight operating overhead cost management. As a consequence of retail expansion, however, selling expenditures will increase more sharply than sales. We'll also continue to invest in brand communication, so that marketing expenditures are expected to grow at least as quickly as top line. Currency translation effects will only play a minor positive role for EBITDA As a result, E As a result, EBITDA margin is projected to decline in 2015. Finally, investments will amount to between €200,000,000 €220,000,000 related to own retail expansion and refurbishments as well as the 2 franchise takeovers. Omnichannel investments, the expansion of our production facility in Turkey and the relocation of our U. S. Headquarters within New York City. Ladies and gentlemen, the Q1 was by no means an easy one for Jugoboss. While economic indicators signal an improving consumption climate, the overall apparel industry has not felt much of an effect from this yet. I strongly believe that apparel is in a tough competition with other consumption areas, be it automotive, consumer electronics or housing. That's why we need to work hard to secure our share of the consumer's wallet. For HUGO BOSS, this means driving the emotional appeal of the brand across menswear and womenswear. It means offering flawless service through perfect retail execution and a maximum of convenience through omnichannel. In this environment, strong innovative brands being able to offer superior shopping experience will win and I'm sure we will be one of them. Thank you for your attention. Marc Lan and I will now be happy to answer your questions. Thank you. Your first question comes from the line of Chiara Bettasini. Your line is now open. Good morning. Hi. Thank you for taking my questions. Three questions whether you could give us more color on the like for like between the outlets and the full price stores please. Then on the like for like again, if you could provide us with the price volumes drivers for the like for like? And finally, the full year guidance suggests still a strong improvement of EBITDA in the next three quarters. And you mentioned it's going to be both the gross margin and tight cost control. Was wondering if you could help us understand to what extent it's going to be gross margin and to what extent it's going to be cost control? Thank you very much. Yes. We will not further break down in specific numbers the like for like numbers by our 3 retail formats full price, outlets and online. However, as you have seen from our comments, we have seen in the current environment compared to the group average 3% a stronger performance in outlets, well a weaker one on the U. S. What we can confirm that the U. S. Has stayed in positive territory, but clearly at a slightly lower number than the average. Please keep in mind that the U. S. Represents about 2 thirds of our overall retail business. So it's the U. S. Performance is a key driver to the like for like performance for the group. Also unchanged to prior quarters, pricing has played only a super minor impact on when it comes to our like for like development. Our like for like development is primarily driven by our ability to maintain discount levels. Actually we were able to improve discounts the factory outlet business compared to the prior year. However, the relative share of outlets in the retail mix as I just explained has increased which had a slightly dampening effect. So the increase in like for like is purely driven by higher volumes by selling more items and especially selling more items at higher price points. I think we mentioned the higher value per transaction that we were able to record compared to the previous year Q1. For the full year, there's a couple of factors both on the gross margin and the EBITDA level that gives us confidence in achieving our full year guidance. I think your specific question was on the gross margin. Actually for the full year, we do not expect any major factors driving gross margin development for the full year other than channel mix. As you have seen from our explanation, we continue to retail to grow over proportionately by a healthy like for like development, the impact of new openings plus the we are just starting to see the impacts on Korea and the remainder of the buyout in China. So the overall growth in retail will fuel a growth in gross margin relative to last year driven by channel mix. Thank you very much, Berke. Thanks, Kia. Thank you. Your next question comes from the line of Antoine Belge. Your line is now open. Yes. Good afternoon. It's Antoine Belge of HSBC. Three questions. First of all to actually follow-up on this question of comps. You achieved 3% in the Q1 yet you are expecting an improvement sequentially, but the guidance is low single digits. So does it imply that you're expecting an improvement in the DAS comps with regards as opposed to the trend that you're having once you include or compute the online on the outlets? The second question is on actually the margin in the Q1. I mean, usually you said that to in order to drive leverage, you need a mid single digit increase in like for likes grow margins. So I was saying it was not the case, but still the magnitude of the EBITDA decrease was quite significant. And so it's in that over the full year it should be less wise again the on the low single digit comps. So were there any particular investment or one offs in terms of SG and A in the Q1? And thirdly, you mentioned that there was excess capacity in terms of retail in China. So is it just a general comment or in terms of what you need to do maybe in terms of closing stores for your particular network? Thank you. Let me take the first two questions. Claus will come back on the third one. You're right in your assumption. We do not expect an overall significant change in the like for like development to what we have seen. And as you rightfully stated, it's in line with what we gave consistently as the guidance for 2015 in a difficult market environment. However, we do expect in the relative composition a stronger development in our full price stores, which has an over proportional impact due to the higher margin compared outlet development. Not dramatically coming back to Kiara's question earlier, we have seen a relative underperformance of our full price store to our factory outlets in the Q1. So we do expect for the remainder of the year that both sales channels, especially the margin in relevant full price stores will perform slightly stronger than what we recorded in the Q1. On the EBITDA margin in the first quarter below the gross margin development, I think we touched on that one. There were some already known factors that due to the overall retail cost increase due to underlying cost increases and the cost of takeovers are all non like for like be it new openings or takeovers was above the gross margin contribution. So our retail business in overall was dilutive in the Q1. Please keep in mind that for both SG and A S. And in Switzerland. In in the U. S. And in Switzerland. In addition to that, I think we mentioned that the Q1 has seen a significant step up in our marketing expenditures. So we continue to invest in a difficult market environment, in particular in the online field where we have seen strong results and we are committed to further invest into making consumers aware of these significantly improved services that we offer with the hugoboss.com site. So for the full year, we guide for at least the same percentage spending levels on marketing, which we see crucially needed in a highly competitive environment. G and A with 12% growth. Clearly, as I said, we don't break it down, but there is a significant part of that also due to effect typical to forecast for the full year, but it will be contributing to a stronger growth than we would have seen on a currency neutral base. In addition to that, the preparation that we are executing right now of taking more services on the online business in house also triggers sizable investments in our IT systems. So as we explained last time back in Paris at our last Capital Markets Day for the omni channel readiness, the year 2015 will be a year of significant investments also in the IT area. All three factors taken together, FX effects plus the investment Q1. That G and A development will be not the similar source like in the prior year of operational leverage as we have seen for example in the years 2013 and 2014. On the Chinese retail space question, I will hand it over to Claus. Yes. I think this is the most important reason for still challenging business in China not the existing or let's say the upcoming excess capacity in new shopping malls. Its visitors down. So we see continued downward trend with regard to the visitors in leading malls. In opposition to what we are currently seeing in with regard to the Chinese traveling abroad, so their presence is stronger than last year. That's rather good news. So the Chinese are continuously careful with regard to shopping inside their own borders, but they continue to be important shoppers in Europe, which is good news. We see some very positive effects coming out of our own stores with regard to counterbalancing this reduced traffic by improved key performance indicators in terms of average transaction conversion rates. So wherever we control the activity for more than 1 year with additional trainings and additional activities in order to improve the activity with existing customers. We see results able to even counterbalance the reduced traffic. We still have to do some homework with regard to the most recently taken over stores from franchise partners, but I'm positive that this will be on par pretty soon with stores we are managing already for more than a year under our own belt. The excess supply of new malls is rather visible in medium cities. So in the secondary or third tier cities, this is not so visible in Beijing or in Shanghai. It's more visible in cities where older malls are now replaced by newer malls. And sometimes we see more malls coming up than the city itself seems to be able to digest. But this is something which we have to deal with regarding the right choice. But it's something which will be with us for a longer moment in China. Maybe just one follow-up on China. There's another comment you made in your prepared remark. I think you said you noted less social acceptance of luxury products. So do you think that as your watches or other accessories for instance? No, not at the same degree. So we assume we were impacted to a certain degree, but not comparable to very high end luxury brands, but also not at all comparable to what we have seen in the watch industry and the accessories industry. From the line of Claire Huff. Your line is now open. Yeah. Hi, there. Two questions, please. The first one on online. Just wondered if you could give a bit more color on where that growth is coming from. So are you seeing new customers shop with you online? Or it existing customers spending more, ordering more frequently, higher conversion rates, that sort of thing? And also whether your online offering is margin accretive at the EBIT level please? That's the first question. And then secondly, just wondering how your customers in Europe have reacted so far to the brand elevation. More just curious as to how you're thinking about raising prices and also discontinuing some of the entry price points at a time when it seems that the lower priced outlet channels are actually outperforming. So just whether you have any data on sort of the elasticities of demand in the core retail business that would be great. Thanks. Yes. Okay. So regarding the online business, we informed you a couple of months ago about our activities to bring the 2 split pages together, which is now done and accomplished. So there's one easy to be accessed landing page, which gives you access to the entire Hugo Boss world, including the institutional part as well as the shopping universe. This has brought us significant improvement in terms of generating traffic, but also using traffic for shopping purposes. We have substantially changed the way we look into the digital communication area in terms of performance tracking what we do there. Our digital activity in the communication field was most predominantly oriented towards the image arena In previous years, today it's a mix in between image and traffic generating activity, which clearly helps in order to improve our online business. We have added some additional very important features in the mobile arena, shopping mobile. We made certain functions become easier to be used user friendly by this famous AB testing, which has become part of our design process of new features. And all this is clearly helping us in order to reboost our e commerce site. And it's together with this overly reduced traffic pattern in physical retail giving us high confidence that our important investments into the omnichannel readiness in the beginning of 2016 will be rewarded by not only attracting more consumers to Hugo Boss, but also giving consumers who are already in our world more opportunities to shop with us? That will be my question or my answer to your first question. Our outlet activity has been growing slightly stronger than our full price activity. But also here we need to give you one clear explanation. The way we are managing our activity across the different countries has been changed. So we are looking into outlets in a different way with regard to the merchandise mix, with regard to the merchandise supply. We have clearly seen that even if the customer is still different shopping in outlet centers than shopping food price, they are more and more attracted by superior services in terms of restaurants, in terms of full day enjoyment facilities. And for that reason, we thought and we still believe that giving more attention to the right merchandise mix, right always available merchandise mix in our outlet stores is something which will help us long term. That's the reason why we see right now a slightly more important increase in activity in our outlets compared to the full price. Okay. Great. Thank you. And then sorry just coming back to the online. Is it margin accretive currently? On the EBITDA, it's slight accretive at the current size of the business, which gives us also confidence as we grow this business to even bigger size after the insourcing that this will be a major or important driver for sustained profitability growth in retail. Perfect. Thanks very much. Thanks, Sarah. Your next question comes from line of Thomas Chauvet. Your line is now open. Good afternoon. I have three questions please. The first one on Womenswear. It was a very good performance for the core BOSS label overall I think plus 11%, but only plus 4% for the womenswear lines due to I guess double digit decline at BOSS Orange. How long do you expect that downsizing of Orange in own store to continue for? And is there any plan to offset that with wholesale? And more generally on Womenswear, obviously the growth rate has nevertheless slowed down a lot versus last year. Do you think there's new challenges for Jason Wu at HUGO BOSS this year? Or is it just a part of the broader weakness in April you were referring to? Secondly, on the inventory valuation comments that impacted the gross margin, could you quantify in EUR 1,000,000 that inventory valuation effect and indicate whether these are actually write downs of inventories or simply a more cautious provisioning method? And thirdly on pricing and Claus your comment on the pricing gap across region. I mean as you're elevating the Boss Black brand towards luxury, are you not a bit required to look at your relative pricing gap across region Europe, U. S, China, given the euro weakness. But also within Europe, you have now a pretty important price gap between Germany, Switzerland and the U. K. For instance. I thought maybe I misunderstood you were trying on the contrary to harmonize a little bit prices globally, especially in Europe to give the brand a more coherent positioning. So I'd like your comment on that considering the big euro dollar moves. Thank you. Your first question related to the performance of BOSS Orange in yoga and women. We will and this will be already the case for winter 2015, we will not show any more Boss Orange women or Boss Orange men in our own stores. But at the same time, we will significantly increase the number of Boss Orange presentations in women as well as in men in department stores at wholesale. And this will in the seasons to come counterbalance the loss in own retail activity. So BOSS Orange at wholesale and wholesale continues to be a very competitive environment is doing just fine. And this is the case for men as well as for women. And we see the same for euro. As we explained to you in November 2014 last year during the Investor Day, orange and YUGO and green to certain degree are going to be purely wholesale oriented brands. And we see that all three brands are able to grow significantly once we have organized and managed and accomplished the entire transition process, which always takes a little time in between the announcement and then the visible effects to be followed in follow through in numbers. Jason Wu is doing good. Both Orange both women in our own stores, but also in leading department stores in shop in shop formats continued to do well. Jason continues to show us important creative positive impact. And for that reason, that's everything is on track in the world of BOSS WOMEN. The next question was inventory write down. I would like to hand this over to Mark. Last question was with regard to how we see the price harmonization. Would like to focus first on price harmonization between Germany and China. That's our most important task and homework to do. We are less concerned about price differentiation between Germany and U. K. Or Germany and Switzerland, even if we have reacted to the most reward prices in local currency in Switzerland to a certain degree and this was appreciated by local customers. But what we continue to do in order to bring down the gap in between Germany on the one side and China on the other side is keeping prices in China and reinforcing the offering in terms of quality and fabrications and content without lowering our price position because there's no need to bring our brand in terms of price points below the existing price positioning from a consumer point of view. And via the new brand portfolio structure increasing prices at BOSS in our own retail stores, but also in shop in shop driven environments with more quality and more substance for then subsequent higher price positioning. On the inventory question, I think we guided here that the inventory valuation was a smaller dampening effect not fully affecting the channel mix effect from previous discussions on this topic. I think we have a pretty good feel what is the impact on gross margin from a growth rate differential in local currency of 8 percentage points, so plus 6 on retail minus 2 on wholesale, so 8 percentage points growth difference. Not all of that was fully offset, but since on a net basis, we had only 10 basis points improvement on the gross margin. I think you have a pretty good feel. It's a smaller mid single €1,000,000 impact that we had from inventory valuation. The inventory valuation method applies across the globe at all 55 sales subsidiaries at HUGO BOSS unchanged for the last 4 to 5 years. It's based on all inventories being kept in our SAP system. So it's an algorithm applied due to the total amount by market and the ability of this market to sell these inventories depending on sales capabilities. And as you have seen from the buildup of inventories, I think we already highlighted this as an area where we do not expect further improvement. So it's in line with our expectation. It was a slight dampening effect. We need to bring our inventories down to more healthy levels to avoid write downs in the later course of the year. The write downs we have now executed through the P and L in the Q1 reflects current inventory situation, which from our perspective should be relatively close to the peak in relative performance to what we will see in 2015. But clearly that's among other points a point where we need to deliver on to demonstrate further improvement. However, we're quite confident and I think we mentioned that with measures that we have started to implement that we'd see already inventory to come down significantly in the second half of the year. Thank you, Marc. Thank you, Thomas. Thank you. Your next question comes from the line of Warrick Okenes. Your line is now open. Yeah. Good afternoon. It's Warrick O'Kaneys from Deutsche Bank. Could you tell us what the constant currency operating cost growth was in the quarter please? I was just waiting for this $10,000,000 question because I remember that also on our previous occasions there was a lot of anxiety or excitement both on the buy and sell side, how we will all be printing money in the year 2015 due to the euro weakening. And we try to dampen this effect slightly. Not all players in this industry are equal. We acknowledge that, so we can clearly only speak for sugar buzz. But what came through, what exactly as we projected, Yes, in terms of reported net sales, we benefited from that also in the segmented profitability we've seen the impact in particularly in the Americas from the weakening of the euro versus the U. S. Dollar. However, for the U. S. Bos not only the U. S. Dollar, but also the Swiss franc plays a major role when it comes also towards our fixed cost development with very limited room to address these fixed cost base at least on a short term base. So from the overall increase whether you take SG and A or sales and distribution expenses or G and A expenses being up 12%, a significant part of this 12 percent increase, but we will not break it down specifically comes from the translation effect from non euro denominated expenses. Overall, we continue to confirm that the EBIT or EBITDA impact from the exchange rate fluctuation versus last year has been positive, but it has been only a smaller impact. In other words, without the fluctuation in the currency all other things equal, unfortunately, our EBITDA development would be slightly below the flattish development in absolute terms that we were able to report. Since there are a lot of moving parts, we continue to not to provide you an FX adjusted EBIT number. We think that it's not the right way to guide you on an FX adjusted profit number. I think that's where your question is heading. We would like to continue to work with just numbers when it comes to top line, but work with reported number when it comes to earning numbers. Okay. Thanks very much. Thanks, Warrick. Next question comes from the line of Julian Easthoek. Your line is now open. Yes. Thank you very much everyone. I have a couple of questions for me. The first one really regards the like for likes and the comps for the rest of the year. And you're guiding to low single digit comp growth and yet your comps from this point between 2014 for Q2 to Q4 deteriorated until they are flat in Q4. Did you was 2014, I guess, a normalized year, which you're growing against? Or do you think are you just being relatively conservative with your outlook for the rest of the year? The second question comes back to womenswear. The BOSS Black brand is about 73% of total sales. And is that a similar split with women's wear to men's wear? Or is women's wear a higher percentage outside of the BOSS the main BOSS core brand? Thank you. Yes. On the like for like, we stand to our commitment that in a normalized year, our objective is to well, let me rephrase it differently. In any given year, our objective is to outperform our the market segment that we operate in our like for like performance. And we continue to believe that with the 3% like for like that we were able to report in Q1 that's maybe not the leading, but an above average performance that the company was able to achieve in the Q1. However, we do need at least something around 3% like for like to maintain retail profitability all other things equal. And we will achieve structural profitability advancements if we are able to achieve mid single digit like for like developments. We see this also as a yard on a normalized year as a metrics to achieve with all measures that are available to us to further improve our retail operations be it in the digital world or be it in the physical world. However, we have to acknowledge and the current market environment has proven us right that in more difficult market times already improvement of 2% or 3% is already an achievement that is worthwhile to applaud for the company. For the remainder of the year, we stick with our projections giving with all the disclaimers on visibility that we think that a low single digit like for like is the most realistic assumption for the group with slight changes in the composition as Chiara asked earlier. But we expect on the midterm in the later course of 2015 or late 2016 an acceleration like for like development to the targeted range of mid single like for like development. Sorry, your second question was on which topic? Hi, yes. Just in terms of proportion of the core BOSS brand in womenswear and whether it's the same as the 73% you get across the range the full range? Well, womenswear overall is 11% for the total group. Actually it's slightly higher on HUGO than it's on BOSS. But due to the momentum there we've seen now for the last 18 months with Jason taking over the BOSS women's wear line, the relative share of BOSS Womenswear compared to BOSS Menswear has been increasing. But the brand actually with the highest women's wear share historically has been the HUGO women's wear within the HUGO brand. But our focus clearly is as Claus explained earlier the brand in our retail environment is BOSS and this applies to both genders. HUGO and Orange will play an important role in our wholesale distribution strategy. But since retail is our main growth driver, our midterm target to achieve 15% at least 15% womenswear will be achieved by over proportional growth in the BOSS Womenswear line. Okay. So is it roughly fifty-fifty then the core to non core womenswear or to the core to the HUGO orange for example? Let us confirm this number, but I would say it's about 60 percent of the women's wear business is BOSS and the remainder is about 40%. Okay. Lovely. Thank you very much. Nothing wrong with this assessment, Dennis will come back to you with the correct number, but I think that's probably the right number. Okay. That's it. But just broadly that's fine. Thank you. Thanks, Giuliano. And we have no further questions. Please continue. Well then, thank you very much for your participation in today's conference call. We look forward to speak with you again at the time when we publish our half year results. This will be August 4. And also we would ask you to save already the date for our upcoming Investor Day. Our Investor Day 20 15 will be held on Tuesday, November 24 at the group's headquarter here in Metzing. And we will also share more information on this event with you in a few weeks. So thank you very much and have a good day. Bye bye. That does conclude our conference for today. Thank you for participating. You may all disconnect.