Hugo Boss AG (BOSS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's HUGO BOSS Full Year 2020 Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. Now I would like to hand the conference over to Christian Stoehr, Senior Head of Investor Relations. Please go ahead, sir.

Yes. Thanks very much, and good morning, ladies and gentlemen. Welcome to our full year 2020 financial results presentation. Today's conference call will be hosted by Yves Müller, CFO of HUGO BOSS and spokesperson of the Managing Board. Before we get started, I would like to point out that all revenue-related growth rates will be discussed on a currency-adjusted basis, unless otherwise specified. [Operator Instructions] So let's get started. And over to you, Yves.

Thank you, Christian, and good morning, ladies and gentlemen. Also from my side, a very warm welcome to all of you. The focus of today's presentation will be on the following 3 broader topics. First and foremost, I will guide you through our 2020 operational and financial performance with particular emphasis on the fourth quarter and elaborate in detail on the implications of COVID-19 on our business. I will also spend a considerable amount of time to discuss some of our strategic initiatives that we have implemented recently in order to return to growth as quickly as possible. Last, but not certainly least, I will outline our top and bottom line expectations for the full year 2021, notwithstanding that the environment we are operating in remains uncertain as we speak. But let's begin with some general remarks on fiscal year 2020, which has been, without a doubt, an exceptional and challenging year for all of us. If anything, the COVID-19 pandemic has demonstrated how vulnerable everyday's life is and how important it is not to take the status quo or existing standards for granted. Instead, to win over the consumer even in such unprecedented times, which ultimately matters is to a truly customer-centric and to have a strong and flexible organization in place, which allows us to react quickly to a changing market environment. In this context, I am particularly proud of the high dedication, resilience and agility of our almost 14,000 employees worldwide. Thanks to their tremendous efforts and great commitment, HUGO BOSS has not only overcome the challenges associated with the pandemic, but also laid important foundations for the long-term success of our company. Throughout the entire year, one of our key priorities was the protection of our financial stability and flexibility, in particular, as the environment we are operating in was highly fragile. Consequently, at an early stage of the pandemic, we took a very close look at any measure that would allow us to secure additional cash flow, something I will get to it in a second. We have also put particular emphasis on driving the gradual recovery of our global business by exploiting all sales opportunities, be it from a brand, market or channel perspective. In particular, during the third quarter, our business was able to recover strongly, supported by a temporary fading of the pandemic during summer. Lastly, and equally as important, we have never lost sight when it comes to executing our strategic initiatives to ensure we return even stronger after the pandemic. In this context, we also succeeded in further increasing the desirability of our 2 brands, BOSS and HUGO, and in aligning our diverse product range even better with the needs and wishes of our customers. I will outline the most recent progress along our strategic initiatives in the second part of my presentation. Before that, however, allow me to first recap on the financial and operational developments in 2020. Thanks to our healthy balance sheet structure, we were well prepared to cope with the financial challenges associated with the pandemic. In addition, and as outlined to you back in May, we implemented comprehensive measures aimed at protecting cash flow in fiscal year 2020. Executing these measures was the top priority last year, and I'm pleased to report that we even exceeded our initial target of cash savings of around EUR 600 million by around EUR 150 million. Starting with operating expenses, where we realized substantial cost savings throughout the year, primarily reflecting personnel expense and rental savings as well as a generally more cautious marketing approach. While this brings the total of OpEx savings to around EUR 200 million in 2020, it also means that we substantially overachieved our initial plans of at least EUR 150 million in cost savings. Secondly, we adjusted our capital expenditure by postponing all nonessential retail and IT investments. As we continued this strict approach also in the final quarter of 2020, CapEx for the full year ultimately totaled EUR 80 million, well below our initial target of around EUR 150 million, thus, in turn, means that we freed up additional cash of around EUR 70 million versus our original CapEx budget. Thirdly, we have put strong emphasis on protecting our inventory position during the pandemic. A generally more cautious approach with regard to never-out-of-stock merchandise, an immediate adjustment of our own production to the lower demand, and most importantly, a significant cutback on merchandise inflow enabled us to protect cash flow by around EUR 300 million in the full year 2020. Consequently, we outperformed our initial target of reducing the merchandise inflow by some EUR 100 million. This achievement is directly reflected in our inventory position, which, in line with our projections, ended the year only slightly above the 2019 level despite renewed lockdowns in Q4. Lastly, and as you are all aware of, we suspended the dividend payment for fiscal year 2019 except for the legal minimum dividend of EUR 0.04 per share. The retention of net profit has strengthened our financial flexibility by almost EUR 190 million in 2020. Overall, our relentless focus on executing these 4 measures, together with a temporary reduction in income tax payments, yielded a positive free cash flow of EUR 164 million. Equally as important, our financial flexibility remains fundamentally sound. This is also reflected by our revolving syndicated loan, totaling EUR 633 million, which was only utilized in the amount of EUR 105 million at the end of December. Also, as of today, we have not drawn any of the additional EUR 275 million of credit commitments that we secured during the course of the year. At EUR 141 million, net financial debt, excluding the effect of IFRS 16, was only slightly up versus the prior year period. With this, let's now take a closer look at the operational development of our business in the context of the pandemic. Starting with our brick-and-mortar business where widespread temporary store closes in the light of global lockdowns put a significant strain on our performance, in particular during the second and fourth quarter of fiscal year 2020. Following a global store opening rate of only 50% in the second quarter, Q3 was marked by a substantial uptick in store reopenings, resulting in a store opening rate of around 95% between July and September. In the light of renewed lockdowns towards the end of the year, however, this rate came down to 85% in the fourth quarter, reflecting closed doors in key European markets and also in Canada. On average, we had to cope with 20% of our global store network being closed on average in the 2020 fiscal year. Beyond temporary store closures, our global business was also impacted by comprehensive social distancing measures throughout most of 2020. In addition, persisting international travel restrictions led to a very soft business with international tourists. While these implications heavily weighed on our brick-and-mortar business, it is also more important that our own online business recorded strong double-digit growth throughout the year 2020 with revenues up 33% in Q4 and 49% in the full year. As expected, growth in Q4 came in somewhat lower as compared to previous quarters, reflecting a more difficult comparison base following the conversion of our Zalando business into the concession model as well as the rollout of HUGO BOSS to new geographies in summer 2019. With Q4 representing our 13th consecutive quarter of double-digit growth, our own online business was able to cross the EUR 200 million mark for the first time in our company's history. This, in turn, propelled the share of our own online business to 11% of group sales, more than twice as much as back in 2019. This brings me to our geographies. And first of all, to Europe, by far, our largest region and home to almost 600 own retail points of sale. With an average of around 25% of our own stores closed in Q4 and also throughout the year, Europe was particularly impacted by the pandemic. In addition, comprehensive social distancing measures as well as low tourist flows in light of international travel restrictions put an additional strain on the region's overall sales development. Consequently, sales were down 32% in Q4 and 31% in the full year with all major markets, including the U.K., Germany and France, posting low- to mid-double-digit sales declines. Markets in Southern Europe, such as Italy and Spain, were hit comparably stronger, reflecting long-lasting temporary store closures as well as a higher dependency on international tourism. Let's now move over to the Americas where the gradual business recovery, which started towards the end of the second quarter, continued in Q4. Thanks to sequential improvements in our U.S. business, the region's sales decline was limited to 28% in the final quarter of 2020 after recording a decline of 82% in Q2 and 41% in Q3. For the year as a whole, this translates into a sales decline of 42%. Also in the fourth quarter, sales in the U.S. continued to be impacted by ongoing traffic declines in both retail and wholesale, largely reflecting the lack of international tourism as well as lower commuting in and around important metropolitan areas such as New York City, Chicago, L.A. or San Francisco. At the same time, we have been observing a rebound in local spending, benefiting our destination states like Florida and Texas, but also in smaller urban shopping centers. To further drive the recovery of our business in the U.S., we are resolutely working on optimizing our product assortment and, thus, our brand perception in the market. On this, our casualwear business in the U.S. market will experience a strong push in 2021, supported by a significantly higher share of product allocations at all points of sale and benefiting from our most recent collaborations with the NBA and with Russell Athletic, something I will get to you in a few minutes. In Asia Pacific, too, we successfully continued our gradual business recovery in Q4. Another quarter of strong double-digit growth in Mainland China paved the way for regional sales to remain only slightly below the prior year's level, as reflected by a 3% decline in the fourth quarter. For the full year, sales in Asia Pacific were down 20%. Speaking of Mainland China, ongoing strong momentum in both brick-and-mortar retail as well as online led to sales growth of 24% in Q4, reflecting a very successful Chinese Golden Week as well as a strong year-end finish. This, in turn, allowed the strategically important market to grow 5% in fiscal year 2020. Apart from Mainland China, also some of the region's smaller markets, such as Australia and Japan, recorded sequential improvements in the fourth quarter, each posting revenue declines in the low teens only. On the other hand, business in markets such as Hong Kong and Macau remained difficult in Q4, reflecting particularly weak demand in light of the absence of tourism. To conclude my remarks on the top line, let's take a quick look at the sales performance by brand. Unsurprisingly, cash flow will prove to be more resilient than formalwear throughout 2020, reflecting the global trend towards a more casual lifestyle, which has experienced a further strong boost during the pandemic. While both brands, BOSS and HUGO, recorded sales declines in 2020, down 32% and 27%, respectively, I am all the more encouraged that HUGO's casualwear offering was able to return to growth in the final quarter of the year. Speaking of casualwear, this product category now accounts for more than half of overall group net sales. On the other hand, the share of formalwear has come down further in 2020, representing only 25% of our business. Now make no mistake, formalwear is and will remain an important part of our business, and we are fully committed to dominating this segment also in the years to come. As such, it goes without saying that we will continue to innovate and modernize formalwear. At the same time, we are also committed to fully exploiting the huge opportunities that come along with casualization as it's our goal to offer our customer the best product assortment for any type of wearing occasion 24/7. We will, therefore, continue to push the casualization of our business model across all brands, genders and wearing occasions with our initiatives in 2021 yielding to that ambition. To complete the picture of the fourth quarter, group sales declined by 26% in Q4. However, even in light of the overall sales decline, I am pleased to report that we were able to record an operating profit also in the fourth quarter with EBIT amounting to EUR 30 million. This achievement was once again driven by tight cost control as well as the successful execution of our various cost-saving measures and despite the fact that the implications of the pandemic weighed strongly on our gross margin development in Q4. The latter totaled to 61.4% in the fourth quarter, representing a decline of 530 basis points. This development is mainly related to increased markdown activity as compared to the prior year period as well as just to some negative inventory valuation effects. In addition, higher freight costs weighed on gross margin development in Q4. On the other hand, we continue to make strong strides in executing our various cost-saving measures, resulting in an overall decline in operating expenses of 19% in Q4. This development was mainly due to a 23% decline in selling and distribution expenses as we realized additional rent and payroll savings in own retail with the magnitude of both effects being quite comparable. Marketing spendings on the other side came in broadly in line with the prior year level, thus, significantly higher than the previous quarter, reflecting our various initiatives towards year-end. And while we recorded some reversals of impairments in the magnitude of EUR 15 million directly related to the COVID-triggered impairments that we posted back in Q2, we also had to account for onetime expenses in Q4, mainly related to severance payments and the streamlining of internal processes. Both effects broadly compensated for each other with a net effect being more or less neutral. From a full year perspective and in the light of the implications of COVID-19 on our business, we ended fiscal year 2020 with a sales decline of 31% to EUR 1.95 billion. Our gross margin amounted to 61% and was down 400 basis points, largely due to the aforementioned increased markdown activity as well as inventory valuation effects. Operating expenses declined a strong 14% in 2020, reflecting our fast, determined and focused approach around cost management. This has become particularly visible in the area of selling and distribution expenses, which recorded an underlying improvement of 16%. In doing so, we partly compensated for the decline in sales as well as the lower gross margin. As a consequence, underlying EBIT amounted to minus EUR 126 million or including the impact from store impairment to minus EUR 236 million. Now ladies and gentlemen, that concludes my review of fiscal year 2020. Let me now spend a few minutes on the progress we have made along our strategic priorities implemented over the last several months. Pushing ahead with the further execution of these strategic initiatives, it's absolutely crucial in order to lay the foundation for a successful 2021. In this context, we will resolutely exploit sales opportunities globally and create brand heat for BOSS and HUGO. Starting with Mainland China, where we successfully carried the strong momentum of last year into 2021. In this context, I'm particularly encouraged by a strong performance around Chinese New Year, which has been a tremendous success for BOSS in particular. During the 6 holidays, momentum has further accelerated, both online as well as in our stores, reflecting substantial improvements in traffic and conversion as well as a strong sell-through of our special BOSS capsule dedicated to the year of the ox. Chinese New Year was yet more proof positive for our strong capabilities to successfully execute regional events in combination with the activation of local brand ambassadors. We will continue to pursue this strategy also going forward in order to maintain double-digit like-for-like growth in the future, but also sustainably lift brand awareness and relevance vis-à-vis Chinese consumer. Our strong positioning in Mainland China provides a great foundation for exploiting the full potential of this market. In order to further fuel our momentum and to best meet increasing local demand, we will upsize existing store location and push for new openings. Shanghai is a prime example in this regard as we are about to prepare for the opening of a new flagship store in the second half of the year. We will also continue to push our online growth trajectory on China by building our very strong momentum at leading local online platforms. Speaking about online, we are equally confident that our global online business will continue its strong double-digit growth trajectory in the years to come. As you are all aware, we have set ourselves a target of growing online sales to more than EUR 400 million by the end of 2022. And we are well on track to achieve this target. After having surpassed the EUR 200 million mark in 2020, we are absolutely confident that by the end of this year, we will reach the next milestone and cross the EUR 300 million mark. Further rolling out our digital offerings across the globe remains at the top of our agenda. As we build on our strong online platform and the successful partnership with Global-e, hugoboss.com will tap several new markets in 2021. Already during the first half of the year, we will add another 12 countries, including markets such as South Korea, Russia and Turkey, with many more scheduled for later this year. In addition to the geographical expansion of our dot-com business, we will further elaborate and elevate the online shopping experience in 2021 by strengthening personal services, such as personal live chat and style advice or seamless, integrating social media functionalities such as Wechat or WhatsApp. From a brand perspective, our one and only focus is on elevating the desirability of our brands in the long run. On this front, we have made substantial progress over the last several months as we are in the midst of launching several exclusive brand and product initiatives, all clearly focused on boosting our casualwear business and winning over younger generations through our strong focus on social media. Speaking of social media, throughout 2020, we have witnessed significant improvements in our social media metrics on the most important platforms, first and foremost, on Instagram. And I'm particularly pleased that both BOSS and HUGO have not only seen a further rise in the number of followers, but also a clear uplift in community engagement as reflected in the average number of likes proposed having more than doubled year-over-year. Also on Tiktok, where we launched very successfully last year, BOSS is enjoying strong momentum as reflected by high community engagement and a steadily growing crowd of fans. All this is proof positive for the success of our evolved digital and social marketing approach and clearly demonstrates our strong focus on inspiring and relevant content tailored to the needs of our social community is paying off. With this, let's now take a quick look at what's in the pipeline for BOSS and HUGO in 2021, starting with the Chris Hemsworth, who was named first global brand ambassador for BOSS Menswear in early January. Starting this year, the 37-year old Australian will be the face of our major global campaigns, therefore, further increasing the relevance of BOSS and giving a strong boost to our important casualwear business. In addition to his career as an actor, Chris is also a dedicated environmentalist. In this context, he will star in an upcoming global campaign dedicated to our BOSS responsible collection, thus further increasing global awareness for a sustainable product offering. The month of February saw the introduction of our second BOSS Menswear capsule co-created by Anthony Joshua. With a clear focus on athleisure, the new capsule was recently launched at the digital live event at our Regent Street in London, supported by singer and superstar, Ellie Goulding. We closed a very successful collaboration with A.J. where we'll pick up further momentum in the coming months as the boxing champion will star as the face of our upcoming Father's Day campaign on social media, thus, providing further tailwind for our growing sportswear business. Our new and exciting partnership with the NBA points in exactly the same direction. Only a couple of weeks ago, we successfully launched the first jointly created BOSS meets NBA capsule. With a strong focus on street style, the logo-inspired collection will help us strengthen our casualwear positioning in the U.S. market. And with the 3 times NBA champion, Draymond Green, as the face of the campaign, we are creating additional buzz on social media. Already today, after 3 weeks on the shelf, I am proud to say that this is about to become the most successful capsule that we ever have launched in the U.S. After a little more than 3 weeks on the shelf, the initial sell-throughs of the collection has significantly exceeded our own expectations. And the next exciting collaboration is just around the corner. In less than 2 weeks from now, we will launch the first casualwear collection co-created by BOSS and iconic American sportswear pioneer, Russell Athletic, containing several unique pieces and strongly focusing on street style. The highly anticipated capsule will launch with a huge global campaign created by publisher and creative agency Highsnobiety. On March 24, we will host an exclusive digital event at boss.com and relevant social media channels, after which the collection will be immediately available for purchase. Let me be very clear, our collaboration with Russell Athletic represents a huge opportunity to substantially increase the relevance of our casualwear business on a global level and in the important U.S. in particular. It will be by far the largest capsule collection ever created for our BOSS brand and instantly available across the globe. Moving over to HUGO, which will launch an exciting new music platform tomorrow called HUGO Louder. Young and globally engaged individuals will share uplifting and emotional content with HUGO's international community, touching on today's most important issues, ranging from diversity over female empowerment to sustainability. Following a digital and social-first approach, the 360-degree activation campaign will focus on 12 music talents that will raise their voices for change, while at the same time, promoting HUGO's core product range as well as selected drops of statement pieces co-created by these musicians. Simultaneously, HUGO continues a successful partnership with its global ambassador, Liam Payne. While the co-created capsule collections keep resonating greatly with the brand's younger customers and the important contemporary fashion segment, they also strongly emphasize our growing ambitions with regards to sustainability. In this context, the latest capsule directly supports the cotton made in the Africa initiative, thereby addressing elevated customer expectations in terms of sustainability. Our strong commitment to sustainability is becoming increasingly visible in our collections and thus also for the consumer. Not only did we successfully launch the first vegan BOSS suit last year. We also launched a traceable wool collection, enabling our customer to seamlessly track the entire supply chain. And we are consistently expanding the overall share of sustainable products in our brands collection. In this context, we are particularly proud that for the upcoming Fall/Winter '21 season, the share of products made from sustainable materials at both BOSS and HUGO were more or less double to a level of around 25% as compared to the prior year season. In this context, I am pleased to see that our many initiatives around sustainability and the progress we are making on the front is also being rewarded externally. We are particularly proud that for the fourth consecutive year, we were included in the Dow Jones Sustainability World Index and for the first time in the Dow Jones Sustainability Index Europe. Based on the Dow Jones criteria, HUGO BOSS is 1 of the 3 most sustainable companies in the global apparel industry. Through our ongoing strong commitment to sustainability, we will ensure that we best meet growing customer expectations in the years to come, while at the same time creating added value for the environment and society. Ladies and gentlemen, the further relentless execution of our strategic initiatives will be crucial to return to sales and profit growth as quickly as possible. Together with the expected improvement in the global retail environment, this makes us absolutely confident when it comes to the recovery path of our business in 2021. Nevertheless, and in the light of persisting lockdowns and temporary store closures, our business, in particular, in Europe, continues to be severely impacted by the pandemic as we speak with an average of around 30% of our global store network being closed so far in Q1. We expect the first quarter in particular to still be affected by the pandemic. Therefore, we project Q1 sales to decline by up to 20% year-over-year. This development, together with ongoing gross margin headwinds in the short term, reflecting the COVID-triggered promotional environment, is most likely going to weigh on the bottom line development for the first quarter. Starting with the second quarter, however, I have every confidence that both our top and bottom line will show a sequential improvement throughout the year. In particular, we forecast group sales in 2021 to be well above the prior year level. This increase will be supported by the anticipated progress along the vaccination campaign, the easing of social distancing measures as well as an uptick in international tourism. Most importantly, however, our conviction is based on our strong pipeline of product and marketing initiatives planned for 2021 as well as the very positive feedback we have received from our wholesale partners following the recently accomplished order intake for the upcoming Fall/Winter 2021 season. As we maintain our approach towards tight cost control, with particular focus on retail expenses, we expect EBIT in 2021 to improve strongly versus the prior year levels and are clearly committed to returning to positive territories in 2021, starting with the second quarter. To ensure ongoing strong cash flow generation also in 2021, we will continue to execute our measures aiming at protecting cash flow. Therefore, in addition to tightly managing operating expenses, we are carefully reviewing merchandise inflow as well as CapEx efficiency for the year. To conclude, we also -- we will also propose to the AGM the suspension of the dividend payments for fiscal year 2020, except for the legal minimum dividend of EUR 0.04 per share. While this decision is far from easy for us, we consider it to be imperative to further strengthen our financial stability and flexibility in fiscal year 2021. Now before I come to the end of my prepared remarks, allow me to officially welcome Oliver Timm as new Chief Sales Officer of HUGO BOSS. Oliver joined us already at the beginning of January and has taken over responsibility of our global sales activity. He looks back over more than 20 years of extensive expertise in the fashion industry and has a proven track record in driving digitalization across the marketplace. Amongst Oliver's top priorities will be the implementation of a best-in-class omnichannel environment for HUGO BOSS designed to offer a seamless, perfectly matched brand experience to our customers. Together with his support and expertise, we will go after our many global sales opportunities and execute them resolutely in the years to come. And less than 3 months from now, our Managing Board will finally be complete as Daniel Grieder will take over his role as the future CEO of HUGO BOSS on June 1. Together with Daniel, the entire Managing Board is looking forward to entering a new era of HUGO BOSS. And this context is our firm ambition to provide you with a strategic update on our journey for the next several years at some point in the second half of 2021. Now ladies and gentlemen, this concludes my prepared remarks for today. And with this, I'm happy to take your questions.

[Operator Instructions] We're now taking our first question from the line of Edouard Aubin from Morgan Stanley.

Yes. And congratulations, by the way, on the cost control in 2020. It's very impressive. So I guess I'll stick to 2 questions as required. The first question is on Asia ex China, which was down a solid double digit. I know you mentioned earlier that, clearly, there was some impact in Hong Kong and Macau from tourism. But could you please provide a bit more color on what happened there by geography? That would be helpful. And then on your guidance for 2021, you talked about sales well above 2020 and an improvement clearly in the EBIT margin. The consensus is currently looking for around 18% growth in '21 versus '20. Does it qualify as well above? And the margin, people are expecting more or less that it's going to be half of what it was in 2019 pre-COVID. If it kind of makes sense, again, I don't need exact figures, but just some color on that, that would be helpful.

Edouard, thank you for your questions and your interest. So first of all, covering the first question regarding Asia. So clearly, I think in Mainland China, we have now a proven record and have seen double-digit growth in Q3 and Q4. Of course, some are supported by domestic market because the Chinese could not travel at all. I want to make the point that, clearly, we have seen that this acceleration somehow prevailed in the first quarter. So Mainland China really remains very, very strong. Coming to the other regions. Actually saw -- regarding other relevant markets, such as Japan and Australia, we clearly saw a kind of gradual improvement over the quarters and actually over the weeks. So you could clearly see week-by-week that we could experience a gradual improvement. Clearly, as you know, especially Australia, they are very restrictive with new infection rates, so they go immediately into a lockdown. So there are some lockdown situations there. And as well as Japan, they have still a high level of infection rates. And so although the majority of stores were open, they were operating on lower opening hours. But I can clearly say that this was somehow improving over the time. Hong Kong and Macau is a different thing. As you know, the Chinese government was only lifting the regulations in Q4 for Macau, so that some of the regions could travel to Macau, for example, and Hong Kong. Both markets are clearly depressed for the moment because Chinese tourism is clearly missing in those markets. And regarding 2021, I think in my speech I tried to be pretty explicit regarding the expectations for Q1. And as you can imagine, I think with a store closure rate of 30% overall, globally, I think Q1 will be a difficult quarter. As we were saying, we expect that the net debt decline in Q1 will be up to 20%. And still, we also expect in Q1 that the gross margin will be somewhat affected by markdowns. So we have to overall consider this for Q1. On the other side, Edouard, I clearly have to say that we have every confidence that starting with Q2 that the development will somehow improve. And I will try to explain it. You see already, like we pointed out in the speech, that once the countries are back to normal, like Mainland China, where the new infection rates are clearly under control, you see a big pickup of demand in our business. Or countries like, for example, in the Middle East, where the vaccinations are already well advanced, you see that the business is clearly picking up. So this gives me confidence once the new infection rates are under control or the vaccination goes through the population that the business will improve. And we will see now over the last weeks that, as well, the Americas are clearly improving with this regard. So this somehow fuels my confidence for starting with Q2 that the business will improve. On top of this, we try to be very explicit that we have in terms of product and marketing initiatives our pipeline is really filled up. And we are very much convinced that we're right in the middle of the pace, that we want to push the casualization and that we have seen very good order intake including these things. So clearly, for the Fall/Winter '21 order intake, our order intake was clearly above our own expectations. So this is for our side a proof positive. And therefore, overall for the year, we remain very confident that we will see a strong improvement in our net sales development.

Our next question comes from the line of Jurgen Kolb from Kepler Chevreaux.

Yes. Two questions from my side. First of all, you mentioned that in those markets that have been opening up where you see, obviously, vaccinations are improving, you're seeing an uptick. Maybe you could elaborate a little bit more in detail, are you seeing a specific shift in fashion demand? Are people, are consumers trending towards as we expected really towards these event dressings again? Or what kind of -- or do you see a special pattern of consumers ordering? And secondly, you mentioned also the project to go and to deepen this omnichannel project. What do you think? And where do you think you have to add additional functions or what you have to do in addition to what you already have in order to get a fully fleshed omnichannel business model?

Thank you very much, Jurgen. So for the first question, you're asking those countries where you already see somehow improving demand, where it is coming from. I would say it's really twofold. So in China, you can really see that you experience a kind of pent-up demand because during lockdown periods, clearly, all the family festivals like weddings or all these things were somehow postponed. So you really can see with this regards when it comes to special occasions that you see a kind of pent-up demand. And this is relevant for the market now like Middle East as well. On the other side, what we experience is after these fierce lockdowns, I think people are having the feeling, the consumer sentiment, they want to go out and they want to shop. I think there's a kind of positive attitude towards this. They come out of the period where they were sitting at home and now they really want to enjoy life again. And this comes actually with a positive consumer sentiment, and therefore, we see in those markets really the demand is clearly picking up. Coming back to your second question. So I think omnichannel activities, what you know is that very often, the majority of our markets where we have our own website, which we really try to connect our website with the brick-and-mortar retail, I think that that's clear. But still, there are more countries. We have today more countries with own website and not connected to brick-and-mortar. So there are projects running in order to connect the off-line retail landscape with online in order to ensure that you have processes like order from stores and click and collect. On top of this, with big marketplaces, we are working on projects like connected retail, together with marketplaces. I think this is in the field of Oliver Timm where we see another sales opportunities somehow to connect platforms with -- connect those platforms and marketplaces with a physical retail. And the third initiative clearly goes into the processes like shipping from stores. So there are platforms like FARFETCH and other things where you can do ship from store in order to leverage your own brick-and-mortar retail environment. So these are the activities, the projects that are ongoing in order to ensure a kind of seamless experience.

Okay. Very good. And just with respect to the orders, and I fully understand that the occasion dressing is picking up, but in terms of a more broader fashion picture, do you -- have you noticed any kind of a special collection, special products that are selling specifically well, maybe less jeans, more chinos, a little bit more? Anything that you've seen or learned there, just curiosity.

Well, overall, I mean, like jerseys, denims, sneakers, these categories are really performing nicely. And on top of this, like I said, you have this kind of pent-up demand in those special occasions. Plus as well, people -- if they go for dinner -- for a dinner party, they wear smart casual items as well from our product assortment. So really, I can say it's really broad based.

Our next question comes from the line of Chiara Battistini from JPMorgan.

Firstly, I was just wondering, looking beyond 2020 -- 2021, sorry, that is still negatively impacted by the lockdowns, I was just wondering how were you thinking about the recovery and the return to 2019 levels going forward? When do you think that will be achieved? Is it going to be 2022? Or is it a longer-term story? And linked to that, more broadly, if you could comment on how you see the broader market pro forma were evolving as we come out of the pandemic? Are you factoring in a meaningful catch-up spend on that segment or rather ongoing shrinking versus 2019 levels given these ongoing casualization trends? So are you assuming those casualization trends to basically stay or -- and continue or normalize, to some extent, as we come out? And sorry if I've missed the answer, but on Edouard's question, are you then comfortable with consensus as you stand for 2021 as of now? Or would you have any comment on that, please?

So thank you very much for your questions. So perhaps starting with your third question. Usually, we have the policy that we actually don't comment on any consensus because there are some different consensus out in the market. So actually, we don't comment on this, and I try to make it kind of qualitative statements on this. So coming to your first questions where you were talking about 2022 and beyond, I clearly have to say that, of course, we are working on the fastest recovery possible. But I think -- please take in mind that Daniel Grieder will join on 1st of June and that we are preparing a kind of strategic agenda for the years to come. This would be kind of 5 years' plan that we will present in the second half of this year. We will do it as fast as possible to give the whole capital market clarity on this. And with regards to your formalwear question, I think what we have seen is, I think you have to be aware of what is the size of our business. So what we have seen during the pandemic is clearly the kind of casualization trend. And the pandemic, of course, pushed this kind of casualization trend. So by the end of 2020, you can say like 25% of our business is formalwear, 50% is casualwear and 25% is shoes, accessories, bodywear and hosiery. So this is the -- how our business is divided. And we have seen in the years 2020 over 2019 that the share of formalwear decreased at around 10 percentage points. So clearly, I think there's an overall inherent trend in terms of trend towards more casualization. But clearly, what we can see now in the market, that some markets are really recovering and we see kind of pent-up demand for even formalwear as well. So I think there's a long-term trend and there will be a kind of short, medium trend going against this overall long-term trend.

And sorry, just a follow-up on this latter point. I was actually -- I was pleasingly surprised that by the -- by your comment on HUGO casualwear actually being positive in Q4. Would you be able to share more color on that, especially on a regional basis, please?

Well, actually, I mean, this HUGO casualwear was especially very successful in the European market when it comes to local casualwear, jersey products. That was really driving it, plus sneakers, tracksuits and these kind of product areas.

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

Yves and Christian, 2 question, please. Coming back to the '21 outlook, specifically cost inflation. If we adjust 2020 cost base for the EUR 110 million store impairment charge and a few other one-offs, you had a total cost base of around EUR 1.3 billion, if I'm not mistaken. Now consensus for the year, EBIT is EUR 145 million. So that seems to imply OpEx given the gross margin assumptions. OpEx up 1%, 2% max. So I know there are a lot of moving parts to your ongoing cost efficiency program as well. But as a CFO, in a year where you guide for strong revenue growth, does that kind of cost inflation makes sense to you? And could you provide more details on which cost lines might grow much stronger than low single digit? I'm thinking A&P. You just alluded to it. And secondly, on the shareholding structure. If I recap what happened over the last 15, 18 months or so, we have now the Marzotto family at 15%. And Mike Ashley's Frasers Group raised their stake to 15% earlier this year, so that's 30% combined. If we focus just on Frasers, they referred to the stake as a strategic position, I think that one of your top 10 wholesale accounts globally. What type of dialogue you have with them? Do you see potential for reinforced distribution agreements online and off-line, specific product lines for the; House of Fraser or Sports Direct. Would it even make sense for them to seek the Supervisory Board alongside the Marzotto? What does Fraser really bring to the table? Is that a positive for you? Could you share some thoughts around this?

So thank you very much for your questions. First, I start with the second one regarding the shareholder structure. So actually, Christian and myself, we are talking to the Frasers Group as CFO and strategy division on a quarterly basis. Like to every other shareholder as well, I think we view this as an internal investor relations task to talk to them on a regular basis. So we don't make big differences between other big shareholders from the institutional investors side. So this is point one. Secondly, you're right. They're on the -- among our top 10 wholesale partners. We are growing the business with the Frasers Group. We have operationally a very good relationship. But regarding their shareholder, there are no interferences so far regarding this kind of commercial relationship. But as I say, I mean, the relationship overall with Frasers Group is very constructive on the commercial side. And regarding the Supervisory Board, we have not seen any interest of the Frasers Group to get a Supervisory Board seat and this is as well communicated to the capital market. So coming to the first point. I think -- clearly, I think, overall, your estimations are not wrong that you are taking. Clearly, we want to have tight cost control, especially when it comes to Q1. I think we have to manage the fixed cost base. And we will resolutely focus on cost management as we speak. On the other side, I mean, we have to clearly observe how our business will recover over the next quarters to come. And therefore, of course, coming with the recovery of the business, we will also invest into the brand, into the marketing activities in order to support the growth of our business. So clear focus on -- remaining focus on fixed costs and investing into the brand, into marketing activities from a kind of a variable cost basis.

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

Gentlemen, actually, I would like to talk a bit also in Thomas' direction. Well, regarding the cost line, to address it on another angle, is there a figure that you can give us on the amount of clearly nonrecurring cost savings that you had in 2020, like the impact of the short-term label or rent forgiveness during the close -- during the period where the stores were closed? And to give a kind of offsetting positive amount, obviously, your impairments also lowered the regular depreciation base. So probably you can give us some number on the permanent reduction of depreciation you had due to these measures. And then on the more operational side, I noted your comments on Russia with interest. So can you give us a kind of potential for this collaboration in terms of sales? I guess, predominantly, we're talking about the U.S. at the start. How big will this become? What price points are we talking? Is this a premium pricing relative to your existing athleisure offering? Just a bit more color on that side, please.

So thank you very much for your questions. So first of all, taking your first question regarding the cost base, and clearly, I think we said this to the capital market always is the majority of the cost savings that we generated in 2020 were dedicated for -- are not sustainable. So they are one-off savings because of short-time work, because of rental leaves and all this. On the other side, of course, there are a bunch of initiatives that were introduced in 2020 for some structural. But clearly, as a rule of thumb, the majority of cost savings were one-off in 2020. And on top of this, yes, if you impair more because we have a special impairment of this EUR 110 million, you can expect, of course, less depreciation in the periods to come. Of course, this has a kind of backswing effect for '21 going further. That's for sure. And the second question was clearly the Russell Athletic. I mean what we wanted to do with Russell Athletic, for us, it's a big event. So we're going to launch this Russell Athletic on the 24th of March. So this will be in the next 2 weeks. I think apart from normal capsule, this has the net sales size of 2 to 3x more than, for example, Porsche collections or Anthony Joshua collections just to give you an indication. So it's clearly in the double-digit million euro amount of net sales potential with this regard. And clearly, I mean, it's all in the respective price ranges, competitive pricing and focusing on the younger audience. But I wanted to make sure that it's not only the products that we are selling. It's also a big marketing campaign that is behind this. We will have a kind of digital event. Like I said, this will be transferred to macro influences -- to micro-influencers, so this will go viral into the social media. And I think this will be a big event. And we have seen already a kind of buzz around these products. And actually, personally, I'm wearing them, too. So it's really great.

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

Yves, Christian, 2 questions for me. First, on gross margin. You mentioned promotionality impact in Q4 and in Q1. Can you give us a measure of that impact? Is it fair to assume around 3 points last quarter? And do you expect something similar this quarter? And going forward, do you expect that to vanish gradually for the year or to remain visible for some time? And the second question, even in your prepared remarks, you mentioned a focus on young clients. I was wondering whether you have any data on demographics that you can share overall and/or by region of where you stand today with the younger cohort versus 1, 2 or 3 years ago?

Thank you very much for your questions. So the first question was dedicated to the gross margin. So clearly, we had a gross margin decline in Q4 of 530 basis points. Out of this, 80% of this effect comes from markdowns and inventory devaluations. So half of the 40 -- half of the 80%, so 40% is coming from markdowns and the other 40% is coming from inventory devaluations. We didn't actually expect these kind of inventory devaluations to come when we talk during the course of the year because as we always promised, we wanted to stay with our inventories on the same level like 2019. So we almost achieved this. But we somehow conservatively is that we have to assess our Fall/Winter collection as well because of the lockdown situation in Europe, and that was the reason why we were booking inventory devaluation as a prudent accountant, so to speak. So we did this. And the other 20% in terms of gross margin was actually coming from higher freight costs because there were some turmoils and freight costs overall in the market because of the pandemic. So these are the effects that somehow explained Q4. I think it's pretty obvious that the inventory devaluation will fade away in Q1, so to speak, because I think this was booked at the year-end. But I think there will be some -- we should expect some markdowns as well in Q1 based on the lockdown situation, especially in Europe. You wanted to add something? And then regarding younger generations. So clearly, you can see that, overall, we have the youngest customers actually in China. And in Europe, it's always the average. And the most aged people are in the U.S. So clearly, we will be more explicit perhaps with this regard on our Investors Day in the second half of this year in order to show you where we're going to attack and where we're going to communicate. But clearly, these measurements that we are taking, NBA, Chris Hemsworth, Russell Athletic, are clearly approaching the younger cohorts. And you see already with the NBA that especially between 15 and 30, 35, we see an increasing number of new customers coming in. And this is somehow spectacular in terms of the achievements that we achieved. And I think, strategically, we need those younger cohorts for our business to get to first contact with our brand. And actually, now we see those initiatives. And actually, for the time being, China is the most advanced in terms of younger customers.

Our next question comes from the line of Volker Bosse from Baader Bank.

Volker Bosse, Baader Bank. A quick one on the gross margin. Is it fair to assume or is it also your best guess to be gross margin back to 2019 level at end of '22? So in fiscal year '22, back to 2019 in gross margin? Is that a good guess for calculation? Second question is regarding the preorder. It's good to hear that Fall/Winter are positive. Can you confirm that, that holds true for the formalwear as well as for the casualwear collection, the good preorder momentum here? And a final one, a quick one on CapEx for the current year, for '21. What is your guidance or best guess?

Thank you very much for your questions. So perhaps I start with the CapEx, your third question. Perhaps to conclude the final year, we were saying we ended the year with EUR 80 million investments. And the original budget was EUR 150 million. And we said that we'll be moderately growing. I think a good proxy is, I think, the middle between this EUR 80 million and EUR 150 million as a kind of proxy for you. Regarding the preorder for the Fall/Winter, I can confirm that this refers to all product groups. So actually, it was -- we did a lot of efforts as well on the formalwear side as well when it comes to innovative products, having stretch performance materials in the formalwear sector. So this was really well received by our wholesale partners. So it was -- it really goes through different product groups. And regarding gross margin, actually, we don't disclose '22 so far. When we'll be back -- let's do 21 first. And we are still assuming that we want to improve, of course, our margin in comparison to last year. So actually, what we currently expect is that the margin will be between the 2019 and 2020 number in '21.

Our next question comes from the line of Rogerio Fujimori from Stifel.

Yves and Christian, I have 2 questions, one on wholesale and the other one on brand heat. On wholesale outlook, what should we expect in the first half given your order intake situation? And on brand heat, with all your initiatives in the second half of last year, how do you assess the the level of brand heat for both today relative to your main premium apparel competitors when you look at your share of voice on social media?

So actually, regarding wholesale for the first half of the year, we are not disclosing this. So perhaps focusing on the brand heat issue, I think we tried to be, in my prepared remarks, tried to be explicit. You can really see -- I mean, in terms of social media, you see that the follower base overall is increasing, low double digit, which is overall good. But I think the most relevant thing is that the engagement in terms of what they're doing with the product, liking it and watching the videos that we are providing and all these things, that the engagement is somewhat increasing. And this is for us the kind of indicator, what we call actually in the industry as social listening. So we try to observe how is our visibility on social media. And especially, on Instagram, we made big progress. And actually, by the way, on TikTok, we were, under our peer group, one of the first ones who were doing -- who was engaged in TikTok. And actually, we saw here a tremendous increase, and we are here on the top 5 brands.

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

So I first wanted to ask about your online business and the relative sizing of hugoboss.com versus your e-concession and whether you've planned the internalization of any more of your online wholesale accounts for this year. And then my second question was just on your retail store network. So I can see that your shop-in-shops in the Americas have gone up by approximately 20 since Q3. And I just wondered if this was reflective of any positive developments with your partners or if it's normal course of business in opening additional stores?

Kathryn, thank you very much for your questions. So perhaps we start with your second question regarding shop-in-shop in the U.S. What you can see here really is, I think, a very good underlying business. So we have a -- so far, we had a business, for example, with Macy's only being in a shop-in-shop. And now we extended this to 2025, shop-in-shops, because Macy's, as a customer, they were really interested in our HUGO products as well because they have a kind of younger audience. So I can clearly confirm that this is somehow business driven. And on the other side, we converted Hudson's Bay actually from a wholesale model to a shop-in-shop. And that was the reason why the number of shop-in-shops is increasing. So it's actually more a conversion than new business. And regarding your first question online. So hugoboss.com is now 60% of our online retail. The concession business is 40%. We were really growing like 49% overall in the year. And although we somehow a little bit decelerated in Q4 because of the higher comparison base, I'm really very confident and very -- yes, confident of the development that we've seen in Q1 so far. So we see a kind of reacceleration in both parts actually, dot-com and the concession business. So clearly, the business is picking up. And regarding the conversion from wholesale to concession, there are some minor players now to be converted. Still, for example, we are talks with [indiscernible] for example, as one of the German department stores to be converted, and some partners in Russia. But that's it so far.

Okay. Ladies and gentlemen, I guess, there's no further questions in the queue. So that completes our conference call for today. As always, if there's any further questions that are left, please do not hesitate to contact any member of the IR team. And with that, thanks very much for your participation and speak to you soon. Bye-bye.

Bye-bye.

That concludes our conference for today. Thank you for participating. You may all disconnect.