Hugo Boss AG (BOSS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the HUGO BOSS Full Year Results 2019 Call. [Operator Instructions] I must also advise you that this conference is being recorded today, Thursday, the 5th of March 2020. I would now like to hand over Christian Stoehr, Head of Investor Relations. Sir, you may begin.

Yes. Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our full year 2019 financial results presentation. Today's conference call will be hosted by Mark Langer, CEO of HUGO BOSS; and Yves Müller, CFO. [Operator Instructions] There's a lot to cover today, so let's get started. And over to you, Mark.

Thank you, Christian, and good afternoon, ladies and gentlemen. Also from my side, a very warm welcome to all of you. Today, as usual, we will review the 2019 financial year, before taking a closer look at our ambitions for 2020. As you would expect, we will also use a considerable part of this call to address the current situation in our strategically important region, Asia Pacific, and also elaborate on how we, at HUGO BOSS, are managing the uncertainty in the context of the coronavirus. But first, allow Yves and myself to recap on the 2019 fiscal year, both from an operational and financial perspective. For HUGO BOSS, 2019 was, without doubt, an eventful year. Some markets clearly proved more challenging than anticipated, hence weighing on our financial performance, in particular during the first 9 months of the year. At the same time, we have made significant progress in executing our strategic initiatives in 2019, something I will get into in a second. This became particularly visible during the important fourth quarter with currency-adjusted sales growth accelerating to 4% and EBIT improving by 9%. The performance of our own retail business was particularly encouraging as we recorded a robust 7% currency-adjusted growth in the fourth quarter, supported by an acceleration in comp store sales growth to 3%. As expected, the positive effect from the intensification of online partnerships in the concession model and the completed renovation of strategically important BOSS stores carried out in the prior quarters became more pronounced, making an above-average contribution to growth in our own retail business in the fourth quarter. In the light of the strong top and bottom line performance during the final quarter of 2019, we achieved our adjusted targets for the full year. All together, sales of our BOSS and HUGO brands amounted to EUR 2.9 billion in 2019 representing a 3% -- increase of 3% as compared to the prior year. This corresponds to a currency-adjusted increase of 2%. I'm particularly pleased to see that all of our strategic growth drivers, online, retail productivity, HUGO and Asia recorded disproportionate growth and thus substantially contributed to group sales growth. Our own online business grew at a strong double-digit rate for the second year in a row. The encouraging sales growth of 35% currency adjusted was not only driven by new online partnerships entered into last year, it also confirms the growing importance of our own online store, hugoboss.com. Last summer, we tapped in 2 important online markets, such as Scandinavia and Ireland, and are now offering our BOSS and HUGO collections online in 15 international markets with more to come. All together, our own online business ended the fiscal year 2019 with sales of around EUR 150 million, thus accounting for 8% of own retail revenues. We've also made significant progress in the further optimization of our global store network over the past year. We renovated our largest flagship store globally on Champs-Élysées in Paris as well as a large number of other BOSS stores around the globe. Already today, our BOSS collections are shining in renewed splendor in around 100 of our own retail stores. This has not only elevated the shopping experience for our customers but also led to an increase in retail productivity in brick-and-mortar retail by a total of 4%. Currency-adjusted sales for HUGO also grew disproportionately, up 5% in 2019. This development was largely driven by HUGO's casualwear collections, which resonated particularly well with HUGO's fashion-conscious consumers, thus continuing the double-digit growth trajectory. In particular, products inspired by graphic reinterpretation of the HUGO logo, such as sweaters, hoodies and T-shirts, continue to grow at above-average rates in 2019. The styles developed by HUGO last summer in cooperation with British singer and artist, Liam Payne, and presented digitally at Berlin Fashion Week, were certainly a key milestone in this regard. As a global brand ambassador, Liam Payne will also influence capsule collection and marketing campaign in 2020, thus fostering and increasing the brand awareness in the contemporary fashion segment. From a regional perspective, Asia Pacific stood out as particularly positive in 2019. Our successes in this important region were nowhere more visible than in Mainland China, where we once again achieved double-digit growth on a comp store basis. We emphasize the importance of the Chinese market for our business with an impressive BOSS Menswear and BOSS Womenswear fashion show in Shanghai last year. Other markets in that region, such as Japan, South Korea and Singapore, also grew nicely in 2019. On the other hand, our business in Hong Kong was down more than 50%, impacted by political unrest and demonstrations, hence, burdening regional growth to some extent. Overall, sales in Asia Pacific increased 5% currency adjusted, thus also contributing with above-average growth in 2019. To further grow brand momentum in Asia Pacific, we will continue to put strong emphasis on marketing campaigns specifically tailored towards the Chinese consumer. Our latest partnership established in early January with Chinese actor and singer, Li Yifeng, is a prime example for this. As a new face for BOSS in Asia Pacific, Li Yifeng will accompany key marketing campaigns as a brand ambassador throughout 2020. With the strong emphasis on relevant social media platforms, this exciting partnership will help us to drive variety for BOSS in our strategically important market of Greater China. Our focus on implementing our strategic initiatives is also paying off in Europe. In our largest region by far, we recorded robust growth in 2019 with the currency-adjusted sales up 4%. We increased our sales in many key markets, including the U.K. and France, primarily due to a strong performance in our own retail business. While currency-adjusted sales in Germany declined 4% in 2019, we have laid important foundations for future growth in our home market. In September, we opened our largest outlet globally close to our headquarters in Metzingen. We also decided to strengthen the entry-level price points at key wholesale partners by introducing a suit offering starting at the price point of EUR 399, which is expected to hit shelf with the winter collection in July this year. Our business in the Americas declined 7%, currency adjusted in 2019. This development mainly reflects a further deterioration in the overall market environment in North America, where both local demand as well as sales generated from tourists were below the prior year level. This, in turn, resulted in heightened promotional activity, which put a strain on our wholesale business in particular. In contrast, our retail business continued to stabilize during the course of the year as reflected by comp store sales being on par with the prior year level in the final quarter. Ladies and gentlemen, that concludes my operational review of the fiscal year 2019. I will update you on our expectations for 2020 in just a few minutes. But first, let me hand you over to Yves, who will guide you through the most important P&L and balance sheet items. Yves, over to you.

Thank you, Mark, and good afternoon, ladies and gentlemen. As Mark already alluded to, in light of the strong top and bottom line performance in the fourth quarter, we achieved our adjusted targets for 2019. But still, the financial performance for the full year fell short of our initial expectations. At EUR 333 million, our operating result was within our adjusted target range between EUR 330 million and EUR 340 million, and thus, 4% below the prior year level when excluding the impact of IFRS 16. This corresponds to an EBIT margin of 11.5% for the 2019 financial year. Let me shed some light on the 3 main drivers contributing to the decline in EBIT. For first and foremost, the lower-than-expected sales growth clearly impacted our bottom line performance in 2019. In particular, the deteriorating consumer sentiment in North America as well as the difficult situation in Hong Kong were 2 developments that were not predictable a year ago. Secondly, increased markdown activity, particularly in North America as well as slightly negative currency effects both weighed on our gross margin development. While we also recorded a positive channel mix effect, this was only able to partly compensate for the negative effects. In summary, this led to a gross margin of 65.0 percentage points, down 20 basis points versus the prior year. Last but not least, additional investments in our own retail business contributed to a 4% increase in operating expenses. As already outlined to you in early November last year, these investments aimed at further progressing strategically important online partnerships and tapping into additional key markets with our online store hugoboss.com. At the same time, in 2019, we have accelerated the optimization of our own store network and renovated significantly more of our stores than in previous years. While these crucial investments weighed on our selling and distribution expenses, up 6% year-on-year, I'm pleased to see that our emphasis on tight overhead cost management is increasingly paying off. This is clearly reflected in a decline in administration expenses in 2019. To conclude on the P&L, the group tax rate came in at 33 percentage points in 2019, representing an increase of 3 percentage points compared to the prior year. This development reflects anticipated additional expenses related to an external tax audit at HUGO BOSS AG, something we flagged well in advance. Accordingly, net income saw a 10% decline to EUR 212 million, excluding the impact of IFRS 16. Now let's move over to the key balance sheet and cash flow items. As promised back in November, we were able to further reduce inventory growth also in the fourth quarter. Thanks to our strong emphasis on tightly managing inventories, our inventory position ended the year on a par with the prior year level, adjusted for currency effects. And as a result, trade net working capital improved by 3% year-on-year currency adjusted. Investments in our business were a key priority in the last year. In addition to the opening of our largest outlet globally, which Mark already mentioned, we also stepped up store renovations significantly in 2019. In this context, we upgraded close to 50 BOSS stores into the latest future furniture concept last year and rightsized or relocated close to 10 stores. On top of that, we also further strengthened our IT and logistics infrastructure and continued to invest into the digitization of our business model. As a result, capital expenditure in 2019 rose by 24% to EUR 192 million. Despite the decline in EBIT and higher CapEx, free cash flow in 2019 increased a strong 22% to EUR 207 million, excluding the impact from IFRS 16, reflecting the strong cash-generating of our business model. Improvements in trade net working capital that we achieved over the course of the last year were the main driver for this development. Let me conclude my review of the past fiscal year with a look at our dividend proposal. As already flagged back in November, we've clearly recognized the importance of a reliable dividend for our shareholder base. To ensure our shareholders will benefit from the long-term success of our business, we are committed to a sustainable and attractive dividend. This is no different for the 2019 fiscal year. Consequently, we will propose a dividend of EUR 2.75 per share for the 2019 financial year. This -- the corresponding increase of $0.05 compared to the prior year reflects our healthy balance sheet structure as well as our strong cash flow generation, which is expected to continue in the future. With this, ladies and gentlemen, let me hand back to Mark, who will give you an update on our strategic priorities as well as our financial ambitions for 2020.

Thank you, Yves. Now let's change perspective and move on to 2020. As you are all well aware, our industry is currently facing high levels of uncertainties caused by the ongoing spread of the coronavirus, which started to weigh on consumer sentiment late January. I will talk in details about our assessment of the coronavirus in just a few minutes. Before I do that, however, let me be very clear about one thing. I'm absolutely convinced that in times of uncertainty, it's even more crucial that we stick to our game plan and continue to focus on the execution of our strategic initiatives. There's no doubt that our strategic growth drivers will continue to be the engine for sustainable profitable growth in the coming years: online, retail productivity, HUGO and, once things get back to normal, also Asia Pacific. Therefore, our priorities for 2020 will certainly include a strong commitment when it comes to the further execution of these strategic initiatives. This will, among others, include initiatives such as the further conversion of online partners into the concession model, the rollout of hugoboss.com to new markets, the optimization and modernization of BOSS stores in key locations as well as the further push of HUGO in the contemporary fashion segment. Our priorities for 2020 will also include a firm commitment to elevating customer engagement around our core BOSS brand in order to drive brand desirability in the long run. Less than 2 weeks ago, BOSS revealed its Fall/Winter 2020 collection in a future-focused show at Milan Fashion Week. A new generation of BOSS men and women showcased designs that seamlessly merge the established codes of our house with the spirit of continual innovation. Various celebrities and influencers, among others our new eyewear testimonial, Hollywood actor, Orlando Bloom, and the star icon, Cara Delevingne, attended event, thus creating buzz on social media. From a product perspective, our commitment to sustainability will become more visible than ever before with various sustainable product launches in the pipeline. In this context, 2020 will see the expansion of our traceable wool designs for menswear and the addition of womenswear pieces to the range. We are equally excited about the launch of our full vegan suit for BOSS crafted at our Metzingen production facility from an organic European-grown linen and made available worldwide in both our own retail stores as well as online. Last but not least, during the upcoming Fall/Winter collection, we will launch a responsible sailing collection inspired by our skipper, Alex Thomson. Another key focus area for 2020 will be North America. Back in November, we laid the foundation to strengthen our business in the market by announcing Stephan Born as a new Managing Director of HUGO BOSS Americas. As you know, Stephan brings great experience in both retail and wholesale from his former role as Managing Director of our Northern European markets, which includes the important and highly successful U.K. market. One of Stephan's key priorities will be the further optimization of our own retail store network by renovating existing BOSS stores, rightsizing selling space where appropriate and exploiting opportunities to relocate to better locations. In this context, I'm very happy to announce that our important BOSS store in New York SoHo district is currently relocating to an even better location close by with the reopening planned already for the beginning of April. Exploiting the online opportunity in the Americas will be another priority for the upcoming year. Over the course of the summer, Canada will see the go-live of hugoboss.com and contribute to above-average growth in our online business in 2020. While wholesale will likely remain challenging also in the short term, it is and remains our firm goal to also stabilize our department store business in North America in 2020 with some first successes expected for the second half of the year. Ladies and gentlemen, with this, let me now talk you through our assessment with regards to the situation around coronavirus and the implication we expect it to have on our business. So what are we seeing? First of all, we look back at a very promising and successful start to 2020 with 3 consecutive weeks of strong double-digit growth in Asia Pacific, reflecting a highly successful Chinese New Year. However, since the coronavirus began to spread in late January, approximately 60% of our more or less 150 retail points of sales in Greater China were closed throughout much of February. Those that remained opened were not only operating at reduced hours, but more importantly, have recorded significant traffic declines of more than 80%. As we speak, across Greater China, traffic is still down substantially, including those stores that have since reopened. On top of this, since the beginning of February, we are recording a softer local consumption as well as a noticeable decline in sales to Chinese tourists in other Asian markets, including Japan and South Korea, but also in some European countries, Italy, obviously, being one of them. Already at this early stage, back in January, we at HUGO BOSS have put in place a cross-functional team to monitor the situation in China as well as other affected markets very closely and remain in constant contact with our colleagues there. While our first priority, of course, has been to protect our employees and our customers, we also mobilized all levers to mitigate the financial impact on our business as much as possible. First, we postponed major investments in Greater China, that includes postponing the majority of store openings and store renovations that were initially planned for H1 towards the second half of the year as well as postponing key marketing campaigns and events. Secondly, our global real estate management team, together with our experts on-site, are in close contact with landlords in order to ease the burden of lease payments at least to some extent in the short term. Thirdly, in order to protect inventory levels, we reallocated merchandise to other markets wherever possible, while at the same time, reducing merchandise inflow to China by cutting back orders for our retail stores. Last but not least, with regard to our supply chain, we have been in very close contacts with our key Chinese partners during the last weeks. However, there haven't been any significant disruption to our supply chain so far, and our partners have already restarted their regular production processes. Beyond these concrete initiatives that have already been implemented. Let me also be very clear that in order to counteract the financial impact of the coronavirus at an early stage, we're applying even stronger focus when it comes to tightly managing our cost base. This includes the cancellation or postponement of any projects that are not deemed to be business-critical, particularly in areas of administrative costs as well as the rigid reassessment of new hirings. Despite these measures, we estimate that the economic consequences of the current crisis will have a significant impact on our top and bottom line development in 2020, particularly in the first quarter. While the overall uncertainty remains elevated as we speak, we currently predict that the coronavirus will have a negative impact in the magnitude of the low double-digit million euro amount on our bottom line performance in Q1. Before I begin guiding you through our financial ambitions for 2020, which takes the expected financial impacts of the coronavirus in account, let me be very clear. I remain absolutely confident in the potential that both brands, BOSS and HUGO, have in Asia Pacific. This region is and will remain of utmost strategic importance for our company. So what does it all mean for our top and bottom line expectation in 2020? Against the backdrop of the current macroeconomic uncertainties and taking into account the outlined assessment of the economic fallout of the coronavirus, we anticipate that group sales will develop within a range of 0% to plus 2% in 2020, adjusted for currency effects. Growth is expected to vary across regions. While we expect currency-adjusted sales to increase at a low single-digit percentage rate in Europe, the Americas is expected to see a largely stable development of currency-adjusted sales. Impacted by the coronavirus, currency-adjusted sales in the Asia Pacific region are expected to decline at a single-digit percentage rate. Moving on to the bottom line. We expect EBIT to come in between EUR 320 million and EUR 350 million in 2020 with the top line performance being the key element to the amount of EBIT that can be achieved. With respect to net income, we anticipate an increase of up to 10%. This should also be supported by an improvement in the group tax rate. Ladies and gentlemen, before we start with the Q&A, allow me to conclude by saying that also overall economic uncertainty will remain high in the short term and is, therefore, expected to burden our financial results in 2020 to some extent. I'm fully convinced that we have built a robust platform over the last years to grow in a sustainable and profitable way. HUGO BOSS is well prepared for long-term success. The desirability of our brands, BOSS and HUGO, remains the most important factor in this regard. We will, therefore, continue to work consistently on executing our strategic initiatives in 2020 and beyond. This will form the basis for future shareholder value creation. On that front, my Board colleagues and I will give you a detailed update on our strategic outlook during our upcoming Capital Markets Day, which will take place at our headquarters in Metzingen on June 18 and 19, assuming that the situation around the coronavirus will have normalized by then. During the event, you will also get to know our new Chief Operating Officer, Heiko Schäfer, personally. I'm very excited that Heiko is joining the HUGO BOSS family later this month. With his strong expertise around sourcing and production, there is no doubt that Heiko will further strengthen our managing board. And with this, ladies and gentlemen, Yves and I are now very happy to take your questions.

[Operator Instructions] And your first question comes from the line of Antoine Belge of HSBC.

Antoine Belge of HSBC, 3 questions please. First of all, I'd like to have a clarification of what you said about the impact in Q1 from the virus, I think you said a low double-digit amount because you were quoted this morning on Reuters with a low single-digit amount. So low double digit, meaning, let's say, if it's around EUR 12 million, would that be comparable to the EUR 55 million you had in last year, so around 25% impact? Second question relates to your guidance. So you guided for the overall retail growth, but without quantifying a guidance for like-for-like. I think if my calculation are not too wrong, the contribution from the conversions like Zalando plus the fact that some of your stores are reentering the like-for-like after renovation. I'm assuming that most of the growth in retail would come from those effects rather than like-for-like. And I assume like-for-like flat. So is that calculation broadly right? And thirdly, regarding the U.S. Whilst I understand fully the guidance for Asia, I was a bit surprised to see only flat for the U.S. So is there any impact from the virus there? Or is it just that you need to do more cleaning in U.S. department stores and maybe I don't know, outlet stores, et cetera?

Thank you, Antoine, and let me just clarify the first point. I hope it was just an -- maybe a transfer mistake, but we were consistently guiding the market to expect a low double-digit impact on EBIT in the first quarter. And that's -- we ask for your understanding, we can't make it even more concrete because I think it's already quite precise a quantification of the impact on Q1 at this point in time. So it should have been also in the Reuters quote, a low double-digit impact on -- EUR 1 million on -- in the first quarter. We have not given a like-for-like guidance at this point in time. Clearly, as I said, we're driving store and same-store productivity, square meter productivity remains one of our core elements, and you have seen good progress, even acceleration in the course of the year. We have, I think, in normal circumstances, the fourth quarter can be seen as a very good proxy that we're making very good progress in this regard. But I would ask you for your understanding that clearly like-for-like, in particular, for Asia, with the closures, has been severely affected. So we are not in the position to give you a like-for-like guidance at this point in time. Hopefully, we'll have more clarity to that when we speak again later in the year. On Americas, you know that's a market that's still very much driven by the wholesale business. We have seen a very disappointing wholesale development throughout the course of the year. We do expect some improvements. However, we expect the wholesale business still to weigh negatively on our business, to some extent, particularly in the first half of the year. We have seen improvement on the retail side of our business, I think I flagged the flat like-for-like development in this region in the fourth quarter, which is a significant improvement towards the performance seen earlier in the year that we feel comfortable with an overall flat development for the U.S. market. It's less, for us, impacted by a tourism inflow. Even so, we have seen in Europe and North America, clearly also less Chinese tourism than we have seen 12 months ago.

Maybe just a follow-up. I think you expect a gradual improvement. What about the notion of pent-up demand? Are you decided that you could catch up a bit of what was lost? I mean, I think that was discussed maybe more for handbags, like Vuitton, et cetera. For your type of products, do you think that what is lost is lost due to seasonality? Or do you expect that when demand will pick up, especially in China, that there will be pent-up demand? Or is it not something that you've baked in into your guidance?

Well, we would always say to you that a sharp BOSS suit is a lifetime investment, and there's always the right time to purchase that, but we recognize that it's not the same commitment than maybe your Tiffany engagement ring. So I think you're right in your assumption that we have to assume that a apparel is a bit more buy now, wear now than some other luxury categories. You might wait couple of years for your Kelly bag, but that's not our core business model. So I think that's not part of our assumption to see that some of the demand we'll recoup in the second half. We talk about the normalization of demand but not that there will be something that will come back stronger than we would expect on a normalized level.

Your next question comes from the line of Jurgen Kolb of Kepler Cheuvreux.

Two questions from my side. First of all, on free cash flow generation. I would like to have your views and your comments on the drivers of free cash flow this year. I understand you don't want to give precise guidance, but maybe some thoughts on the individual levers of the free cash flow generation, especially with a focus on the net working capital. And within this net working capital, specifically on the inventory situation, where you see the challenges, how you try to mitigate the situation there, that would be helpful. And the second thing is more precise on a certain product category, and here, specifically on the suit side. I think when it comes to BOSS, the brand BOSS, you mentioned that also the business or the more formal dressing was actually doing fine for you. So maybe a couple of words on the suit as a category, how you see that evolving and how it performed, especially in 2019.

So good afternoon, Jurgen. I'll try to gauge the first question regarding the free cash flow and regarding net working capital. So in our assumptions, I think the receivable parts and the trade payables are more or less perceived on the same level. I think the key question is referring to the inventories. And I think we have improved our situation until the year-end 2019 already. But of course, we'll be affected by the virus performance in terms of outflow. And for the time being, we take every measurement that we can take, for example, reallocating existing merchandise to other markets that are demanding those merchandise will be more concrete. So transferring from Asia to other markets like Europe and in the Americas. And secondly, clearly, what we are doing is that we are reducing the retail buy for the second half of the year in order to mitigate the risk. These are already measurements that we have already taken in order to tackle the issue of the inventories. To be very frank, it's very -- the uncertainty is very high at the moment regarding inventories, and I think every guidance is like a crystal ball. It's not very, very serious if I talk about these things.

And let me follow-up on the question on suiting. We are -- as you know, we were in Milan with our fashion presentation on the BOSS Womenswear and the BOSS Menswear, and there was a clear trend to sophisticated tailoring. So a lot of voices in the industry are predicting kind of like there's a hype around this merge between luxury and sportswear. To some extent, it's getting back to normal. So we are quite happy to see that because if any brand stands for tailoring competence, it's BOSS. And we have seen a very solid demand for our suit business. Am I happy with my 2019 performance in suits? I would still say no. That's why we are working very intensively with Ingo and the team on some new initiatives, the vegan suit is just one. We were overwhelmed almost by the demand for the traceable wool initiative, so there's clearly a strong demand for newness, great stories to tell. And also in terms of price points, I think that's more relevant for the German market, but it's a very sizable market. We have now taken first orders. So we have received a feedback from an important German wholesale partners. And this was a very strong reception from the market that BOSS is now entering this, in terms of volume and profitability, important price segment of EUR 399 and EUR 449, price points that were not covered as part of our global pricing strategy. And to be very clear, it's not a lowering of prices, it's an additional offer that we are now just introducing with BOSS in this German market, which will already give us a good impact, a positive impact on our wholesale revenues for the second half of 2020.

And your next question comes from the line of Elena Mariani of Morgan Stanley.

A couple of questions from me as well. The first one is about the trends you have observed at the beginning of the year. You've mentioned that you've seen strong double-digit growth in Asia. I was very curious to hear whether even in Europe and in the U.S. if you have seen a sequential improvement versus last year. This would be helpful for us to understand how things were trending, excluding the impact of the virus and the overall brand momentum before the outbreak. And the second question is about your guidance. I just want to understand whether in the bottom part of your guidance -- so basically flattish organic growth and EBIT declining year-on-year, you are factoring in a potential meaningful slowdown in travel retail, and maybe a longer-than-expected travel ban across several geographies that might go well beyond the next couple of months. It has been -- is it factored in at this point? Or you believe that right now, it's too early to tell? And if the situation is going to be worse than expected in Europe then maybe your current guidance will need to be readjusted.

Yes. Thank you, Elena. Yes, it was truly a very encouraging start into the year, and I'm happy that we didn't give our full year guidance on the second week of January because it -- we would be a bit caught on the wrong foot in this regard. But it's not worth much now to say because the world has clearly changed, so we have to deal with the consequences of the coronavirus. But you're right, it gives us some confidence that we have seen a continuation of the positive momentum in the U.S., in Europe. So the trends that we have seen in the fourth quarter, I'm absolutely convinced, is the underlying trend to our business. That also will help us to, once we get this coronavirus behind us, will help us to drive our business. And again, it confirms that the 4 growth drivers’ initiatives to our business are actually paying off because it particularly resonated well in the fourth quarter, and as I said, at the beginning of the year: growth in Asia, online growth, HUGO and sales productivity improvements. You're right, in our -- we have not a crystal ball to predict to what duration and to what extent important markets will be affected by the coronavirus. We have to deal with the fact that our business has been already affected significantly in China, to a lesser extent in other Asian markets. Our guidance factors in, not a short-term recovery, but we expect a return to normalized trading over the summer. Some of which will make the total duration on the impact of the business between 4 to 6 months from the outbreak. Of course, we expect, like we already see with a number of cases -- of new cases in China, to stabilize. That already in the second quarter, we will see, at least in China, a smaller impact than we have seen now in the course of February. That's already reflected by the fact that the large majority of our stores are back in operations in China. But we do expect that Asia Pacific, in particular Japan, Korea and Singapore will have an impact beyond just the Chinese tourism that have clearly declined. Also domestic consumption is affected. And this is, I think, Antoine asked a question earlier about impact in Americas and Europe. Yes, we are all aware that certain cities, certain destinations in Europe are clearly sought after by Chinese tourism, and this is also affecting our business, but we have seen Europe and Americas to be less affected. And your assessment is absolutely right. A flat net sales development has a more severe -- from today's perspective, would be the more severe impact from the coronavirus from what we know today, which is it makes the lower end of our earnings guidance more likely. If we see an earlier or less intense impact from coronavirus, we expect to deliver a 2% top line growth currency adjusted and to deliver against the upper end of our EBIT guidance. And we will provide you in due course, Q1 will be our first reporting card in actual performance. And the -- our AGM meeting in May and latest at the Capital Markets, we will not only give you an updated projection for 2020, but also when we do expect to achieve -- also on the time access, to achieve the 15% EBIT margin that we still see as a midterm objective to our group.

Just 2 small follow-ups. Sorry, I wasn't clear whether you've actually seen an improved performance in Europe and in the U.S. at the beginning of January. And then second follow-up, can you tell us a little bit more about what you have seen in Europe across your retail store network over the past couple of weeks?

Just to be clear, Elena, I know there's a lot of questions about current trading, we will not comment any further on current trading on the first quarter, particularly by markets and regions. But to answer your question more precisely, we have seen a continuation of the positive trends from the fourth quarter, also going into the first couple of weeks of trading in Europe. But also here, we have now a new situation because also America and Europe, to a lesser extent, is affected by the spreading of the virus into these regions of the world.

Your next question comes from the line of Jaina Mistry of Deutsche Bank.

I've got 2 quick ones. First off, could you talk about how you see gross margins evolving in full year '20 and the key moving parts there? And my second question is, could you tell us how many stores will be in the like-for-like calculation in 2020 and what this number was for 2019?

Well, let me start with the second one because that's something we have to ensure that we have a similar level of disclosure. So let me just -- we have to review on which granularity we provide, the size on our like-for-like universe, but this is something where I will ask our Investor Relations team, who's also present today, to check whether we have this information available. Just in terms of -- to be clear for everybody, our like-for-like universe is always redefined at the beginning of the year based on all stores that are opened and operated for the last 12 months. So there's a continuous change due to new openings, renovations to that. But we probably can give you after the call an indication of what -- it's now the first rough cut estimation from the team that in terms of percentage, there's not much change, about 2/3 of our retail network is represented by like-for-like. But we will check whether we can give you more color to that or not. Yves, you want to get the other question on gross margin?

Yes, the gross margin. So we didn't give a concrete guidance for the gross margin because of the high uncertainties overall that we are seeing and we want to simplify actually our financial KPIs as well in our guidance. I think the moving parts for the gross margin to come will be actually an expected positive effect from channel mix due to more moving parts from wholesale to retail, this will be a positive effect. And the negative effect might be affected -- might be coming from higher rebates that can be granted because of the coronavirus situation. But these are the moving parts. And I just kind of repeat myself, it's of high uncertainty at this moment.

And if I can ask just one quick follow-up. Do you expect the currency to be cost positive on gross margins this year?

For the time being, we expect that the currency will not have a severe effect on the gross margin so far. But of course, this is a moving part in the course of the year as well. But for the time being, that's the case.

Your next question comes from the line of Kathryn Parker of Jefferies.

So my first question is on the creation of the COO role. I was wondering if you plan to make kind of any changes to your sourcing and maybe what changes you were hoping to achieve with the procurement in production. And then my second question is on the store refurbishments to the new store concept. And I wondered if you could give any guidance on how many extra stores you plan to refurbish or relocate in 2020.

Yes. I mean, first, let me say I'm extremely happy with the performance of our refurbished stores. And now I know increasingly everybody or you have been able to visit them, either you're based in London, Paris, or now -- a few weeks from now, also in SoHo in New York. We have, as I said on the call already, more than 100 with the new concept and we are planning to add about 50, either with new stores, renovation, relocation that will have this new store concept, where we're absolutely convinced that it's not only a far better customer experience visiting these stores, but it's also an important element to drive higher sales density. So we will continue. As I said, in Asia, we will have some delays due to technical constraints, some of these malls are now closed. But we are sticking to our game plan to renovate and bring about 50 POS to the new level. The appointment of Heiko Schäfer is something, as I said, I'm very happy and excited about that the Supervisory Board appointed him as the Chief Operating Officer to HUGO BOSS. First, it's his experience. I mean he has demonstrated a long track record working at adidas, working at other fashion firms, especially in a fast-moving environment that he brings additional perspective in speeding up our development and sourcing processes. He has demonstrated a very keen focus developing and sourcing products at superior quality at very competitive prices. Our COGS element to the P&L, a major element where we continue to see significant opportunities to drive profitability going forward. And last but not least, what I found especially exciting about him, he is one of the leading heads -- expert in the industry when it comes to further digitalization in our development processes to take full advantage of technology when it comes to taking later design decisions. So to take something that's clearly not broken but is already in good shape, but to take it from good to great is clearly a mandate we expect Heiko to deliver at HUGO BOSS.

Your next question comes from the line of Thomas Chauvet of Citi.

I have two questions, please. First one on cost inflation. If I take the midpoint of your revenue guidance, so let's say, plus 1% organic, and the midpoint of your EBIT guidance at EUR 335 million, that implies a very low single-digit cost inflation this year, assuming obviously some gross margin pressure. Is that a fair assumption for cost growth this year? And if the revenue guidance were revised down due to disruption from coronavirus in H2, have you identified additional cost saving you could cut in the second half of the year? And secondly, maybe, Mark, could you share with us some of the topics of discussions you had with the Supervisory Board over the past few months, over the past year and particularly with the Marzotto brothers, given they've recently raised their stake to 15%? They've been a long standing partner and believer in HUGO BOSS, so I don't know if there's anything you can share now or if that's something for discussion later at the Capital Markets Day.

So Thomas, I will take the first question regarding cost inflation. I think your hypothesis overall is right. What we all do is clearly to execute on the efficiency program that we are doing in order to limit the cost inflation in every respect. And this is what we're continuously doing. And even now, in these times, in these troubling times, I think we are even more focusing on these cost items. Just to give you one indication, perhaps, in our guidance, you have seen that the -- from a nominal point of view that the investments will go down in comparison to 2019. But there is one big effect, of course, we are -- because in the last years, there have been the big investment into the factory outlet in Metzingen. But on the other side, I can tell you that we clearly are increasing the efficiency of the CapEx by around 20% to 25% in order to somehow speed up our remodeling without increasing our investments and without losing the quality of the products, just to give you one example of those. And of course, we are very active, as Mark pointed out during his speech, to cover all the remaining costs, especially in China. If the stores are not opened, we go there and we negotiate with the landlords in order to get some short-term reliefs on the rental expenses. So we -- what I try to convey is we are very close to the business and try to somehow mitigate the negative effects coming from less top line to compensate this on the cost side.

And Thomas to the second part of your question, I think it's clear that any discussion between the Managing Board and the Supervisory Board is clearly confidential, and we will not comment on any of these internal discussions publicly. But I think there were 2 events, and I think you already were referring to that. One was the increase in the shareholding from the Marzotto family which was sizable. I mean it was almost a 50% increase in their shareholding, we're now above the threshold of 15%, which also we decided in collaboration with Luca Marzotto, who's representing Marzotto family and is also a member of our Supervisory Board, that first, to be very clear, we are very happy by the support and the investment and the commitment from the Marzotto family demonstrated by this increase in investments because it's a dual role that Luca and Gaetano clearly represent as member of the Supervisory Board, but also as our single largest shareholder, that this should be seen by the capital market as an endorsement that this company has a potential that's not fully reflected yet, and we have to -- there's a strong belief at the potential from the strategic initiative that we're working on. So the second is what we announced today. Of course, there was an intense discussion on the extension to the Managing Board. And as I said earlier, I'm very happy that we have a very broad consensus that this is an important role, that it should be filled on the Managing Board. It has the full endorsement from the existing Managing Board, and we are truly looking forward to the -- to Heiko joining us in a few days. What we will share with you as part of the Capital Markets Day in June is clearly then aligned with the Supervisory Board: what is our financial ambition for the years to come, where do we stand in executing in 2020 despite the impact by headwind from coronavirus. So this will be the next important data point that we'll share with you. But we're just, again, very aligned with the Supervisory Board.

Just a follow-up on the COO appointment. Mark, in what way will your CEO role evolve in terms of your day-to-day, your main focus? What are the new projects? Maybe you had it in mind and you couldn't implement because of being perhaps a little bit stretched. Is there anything you can share in the way the CEO-COO structure will evolve, and your role in particular?

It's a very valid point. To be clear, first, I will ensure that we have a smooth transition in responsibilities on the operations side. And I'm absolutely confident that this will happen in a very smooth and effective way. But it's clearly also the intention to giving you more time to focus even more on the retail side of -- retail and wholesale side of our business. I think it's an absolutely right thing now to do to give me also my role for the key function that is decisive for our success going forward, the flexibility and the ability to take even more focus and time to deal with our markets and distribution channels and business partners. So that's clearly the intention from us.

Your next question comes from the line of Philipp Frey of Warburg Research.

A couple of questions from my side. First of all, I think you alluded already on your happiness with refurbished stores. But I think in the past, you provided us some numbers on the productivity uplift. Can you be a bit more precise there as well and particularly compare the performance of the newly renovated stores with the older cohorts which was started? How much difference are you seeing there? Secondly, in -- regarding your online concessions. Can you comment a bit on the volume uplift you are seeing upon conversion into concessions? Is it fair to assume that your volumes also increased not only your sales, which should be obviously the case? And lastly, a bit on your budget for like-for-like cost of your retail network. Is it fair to say that this is likely to stay below inflation in this year? Or what's your take there?

Yes. Let's start with the first one. With the refurbished stores, I think, overall, it's clear. We have seen this also for the last third quarter that we talked about that we have seen -- and particularly, for these stores which the vast majority are still in the non like-for-like part of our business because they have been renovated over the last 1 or 2 years, we are very happy that we have seen a very encouraging uplift compared to the pre-performance of these stores. So we continue to see the trend of a better sales contribution, higher sales densities from the refurbished store. I think it will be a key element because driving sales density is one of our foremost important strategic initiatives. We will focus on that one as part of our Capital Markets Day in June in more detail, to give you also more color and more numbers to what is in this specific uplift we have seen pre and postrenovation. On online concession, we believe that our clear reasons why we see also unit sales uplift post the conversion, which is -- which makes also the conversion attractive both for HUGO BOSS and also our former partners. So very often, we convert from wholesale to retail. The most obvious one is the access to a significantly larger inventory pool once the inventory is managed by HUGO BOSS versus a partner. Given the size of our own hugoboss.com e-comm business, the pooling effect across major and our big online platforms like Zalando, which is in concession, clearly, any new partner now has the enormous benefit then whenever he now -- well, this partner now joins the concession business in key regions, Europe and North America, it's very attractive for them because their gross merchandise value will clearly increase with the access to the full inventory depth of HUGO BOSS. And to what degree we have seen now also in terms of unit sales acceleration, it's very difficult to quantify. So sometimes we look at percentage growth rate, absolute growth rate prior and post, and in most cases, to your other view, we have seen the expected uplift also in unit sales. So we not only see the retail conversion effect on top line, but also an acceleration in the unit sales. Now you need to help me on -- the third question was...

Budget below cost inflation.

On the -- well, as I said, we are now -- the one we have to manage now short term is that we are smart in terms of staffing. That we ensure that staffing, and this is something we work with, from our personnel management, that we have the right staffing levels to manage our pay to sales, which admittedly is difficult and in some cases, because we don't want to lose high talent during this time of depressed sales. But where we see a high willingness, especially from Asian landlords, to help or to work together as to get at least a temporary cut on rental obligation. So this will help us to mitigate the impact on the inflationary aspects. So these are the 2 elements we work with, with a strong focus, as we mentioned in the call, to get rent concessions from landlords, and we're making good progress in this respect.

Your next question comes from the line of Thierry Cota of Societe Generale.

First, on the outlet sales. I believe they grew as a percentage of sales last year. I was wondering whether this was due to a switch of the markdown business from stores to outlets that will be in the context of the Metzingen reopening. Or is it reflecting a rise of markdown revenues as a whole? And if you could provide a measure actually of these overall markdown revenues. And secondly, on online business, on the retail online business, if we could have a breakdown on the EUR 151 million full year sales reported. On my estimates, but it could be totally wrong, I'm sensing that the boss.com sales grew at around mid-single-digit pace last year. I was wondering if that was correct and if you had envisioned a slowdown for that part of the online business.

Let me start with the outlet question. You're right, one of our decisions also when you talk about the online concession is that it gives us more control, at which price and which circumstances a merchandise was not sold at full price will be dealt with at the end of season. And like we have done in physical retail, we would rather prefer to rotate fresh merchandise on these full-price locations than to use these full-price sales outlets for secondary distribution. So that's one -- the element that we have seen, a shift of revenues from -- which was indirectly part of our wholesale online concession now to our own controlled outlet distribution. That's one aspect. But what is also clear, whenever you go to Woodbury Common in New York or Bicester, these are winning sales format just voted by consumers. So whether we like it or not, I was in La Vallée just before Christmas, I saw the long lines, especially outside of the Gucci store. There is clearly a preference for many consumers to take advantage of the price discounts offered by the brands in the factory outlet environment. And our objective is to be best-in-class when it comes to menswear apparel in this outlet. And the productivity improvements, also the upgrades we have done in Bicester and Woodbury, and the most pronounced one is now on Metzingen, is clearly that we will ensure a world-class shopping experience also in these outlets. So it's these 2 factors. We are absolutely in favor to clear old inventories rather through our outlets, which is giving us access to inventory. But second, also to have, in the world-class outlet, a good presence. Overall, we expect our outlet share to be around 25% on retail. So this is what we consider as a healthy balance for our business. But the year 2019 was the year where we've seen stronger growth in our outlet business relative to the full-price business. And on online, I think your question -- please go ahead, Thierry.

No. Sorry, excuse me. I was wondering to get a sense of the scale of the markdown revenues as a whole, is it fair to estimate then that about half of the group sales through outlets and also...

In terms of unit sales or value sale?

On revenues.

No, no. That's much smaller. It's about -- as I said, it's about 25%. Whereas today, it's slightly higher. But our target is to have around 25% on retail sales via factory outlets.

I meant including the markdowns in stores.

Well, I think that's -- if you calculate it that way, Thierry, I think that's a number nobody in the industry can provide you because a natural part of also a store, maybe not at Louis Vuitton, but any other player in the industry, to offer your customers an end-of-season sale. And I think it's a valid strategy to pursue also to offer, too, for a limited time period, also sales periods in our stores. So we will not separate these as outlet sales, this is a natural part of an apparel business to have a sales period also in our full-price stores. And just to clarify on the dot-com versus the concessions, I'm not sure how you calculated that. But the development of our dot-com business is higher than what you estimated. But we do not provide a breakdown between the concession, which is more driven also, clearly, by the expansion of the business. And it's not organic in 2019. But also the dot-com growth was above the mid-single digits that you indicated.

Your next question comes from the line of Piral Dadhania of RBC.

Most of my questions have been answered, but since I'm on the line, maybe I could ask around the range and the offer overall. Could you perhaps talk around what changes or improvements you're making in terms of the overall range architecture, both in terms of the breadth and depth of SKUs across key categories? And then maybe just provide a little bit more color as to the rationale and the broader thinking around building out entry price suit offer in Europe. Is that a sign of things to come perhaps in terms of further development of the overall merchandise offer? And secondly, if I could maybe just come back to e-commerce growth for 2019 and ask the question in a slightly different way. Are you able to perhaps help us understand what the underlying like-for-like or the excluding conversion number percentage growth would be for e-commerce for the year? Just to help us get a feel for what the underlying trend is doing before adding on the impact of conversions.

Yes. Let's start with the second one. Clearly, you have seen the 35% overall growth in e-comm with the acceleration in the fourth quarter. The like-for-like is predominantly our own dot-com business. So it's kind of like a smarter way to get the number that Thierry was already trying to get from us because a like-for-like base on the concession is very, very small. But let's stick with it's a low double-digit growth on a like-for-like basis to give you an indication for our overall e-comm business that's either controlled via concession or a dot-com. In terms of complexity, yes, it's an addition in terms of complexity. What we will now introduce is an automatic expansion on our suit offering with these new price points offered in Central Europe. Overall, I'm happy with the streamlining of complexity that was a side effect on the 2-brand strategy. Particularly for BOSS, where we have integrated the BOSS Green and BOSS Orange offer into the overall BOSS offer. We have seen over the last years, a significant optimization, in particular in the sportswear part. Taking out overlaps between BOSS Black, BOSS Orange and BOSS Green with the now integrated offer. So the rationalization on complexity is more or less done and we have seen over the last seasons a relatively stable development in the overall complexity. But this is something we have to review season by season. And there might be also an element in the discussion with Heiko now in his new role that we see that we will further optimize and streamline the offering. Keeping in mind that particularly, we are our own biggest customer in the way we can bundle volumes for our own retail business. This will allow us not only to manage complexity in the development, but also to have better sourcing volume when it comes to buying and producing these prospects and goods in the future.

Okay. Brilliant, yes. Yes, we had the underlying like-for-like at about plus 11%, plus 12% for e-comm. Just on the product maybe, since you've integrated BOSS Orange, BOSS Green, BOSS Black into your new label or banner structure, could you help us or remind us how much you've rationalized the overall SKU count? So how many sort of duplicate lines or products have you taken out of the business to reduce that complexity that you referred to?

As I said, it was particularly important for the sportswear part, which is also in terms of revenues, the larger part of it because we didn't offer suiting on the Orange and Green. But we -- if you take '18 as a base, we've reduced on the sportswear side roughly 30% on the complexity until fiscal year '20.

Got it. And would that -- would it also be a similar number for sort of jeans, polo, t-shirts and other sort of large...

That's all customized. It's all part of what we described as casualwear or sportswear, those are basically jeans, t-shirts, outerwear, jersey products, in general, are key -- and knitwear -- key elements on the spot where we've seen this optimization.

And your last question comes from the line of Volker Bosse of Baader Bank.

Three questions. First, on coronavirus, do you expect any disruptions in your Asian production supply chain, which could become visible in the second half of 2020 with the delivery of the Fall/Winter Collection into your stores? Second question is on the new COO, what are the key and most urgent projects on Mr. Schäfer's agenda? And the final question is on the women's segment, which was, again, down by minus 2%. So what is the strategic outlook for the women's segment going forward?

Yes, let me start with the womenswear. We have seen also for womenswear, a very solid finish to the year, a return to growth. EBITDA was a bit more muted. But I'm overall happy with the development we have seen. Also, the feedback now for the upcoming collection is positive. So there's clearly -- with the support that you're seeing with the fashion show in Milan, as we speak, there is a major launch. One of the so-called blockbuster fragrance launched together with Coty on a womenswear fragrance, womenswear only; so it's not like with BOSS The Scent. A both gender, unisex launch is now Alive. BOSS Alive is a fragrance with the womenswear with a strong testimonial with Emma Thompson. So I'm very happy to see good momentum on womenswear. So let's see what will be the development we see in 2020. On the coronavirus, on the sourcing side, I think we gave a brief statement already as part of the call. As we speak, we see all our Asian suppliers being back in operations. So there was a slower start-up of production due to the fact that travel within China was a bit restricted. But we see no disruption in our supply chain, which could have an impact on product availability for our fall/winter merchandise. We are rather now taking a cautious view on some of these buying decisions, as I said earlier, but we do not expect a disruption from a sourcing side to that. From the priorities from Heiko Schäfer, I think I touched on that already earlier in this call. It's further enhancing capabilities on our operations, sourcing and production side. There's clearly an enormous opportunity to become even more efficient in terms of product costing, in the product engineering, and this is an area where he brings particular expertise from his former role. But it's not only on the cost-value ratio for our product, it's also on the development process as such, where he has demonstrated in previous assignment that he is capable to install very fast, reactive development processes that allows also our creative teams to take later design decisions on colors, on certain fabrics, using digital development platforms that we have started to introduce. And I believe with his experience and his knowledge, he will just take it to the next level. These are just 2. As we said, he will be starting a few days from now. Clearly, he will bring a fresh view to the operations part of HUGO BOSS, and he will clearly be available to you to answer his -- to bring his perspective to it when we -- you will meet them at the Capital Markets Day in June.

There are no further questions. Please continue.

Well, thank you, ladies and gentlemen, for your time today, for joining our call. Again, as always, if there's any specific numbers you would like to dig into in more detail where you were not happy with the answer from the CFO and CEO, Christian and his team are on standby to answer your questions. Let me conclude with thanking you for the participation, and hope to see you soon. Bye-bye.