Hugo Boss Ag S/Adr

Thank you for standing by. Welcome and thank you for joining the Hugo Boss first quarter 2024 results call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Christian Schroer, Senior Vice President, Investor Relations. Please go ahead.

Thank you very much, and good morning, ladies and gentlemen. Welcome to our first quarter 2024 financial results presentation. Hosting our conference call today is Yves Müller, CFO and COO of Hugo Boss. Before we get started, and just like in the past, allow me to remind you that all revenue-related growth rates will be discussed on a currency-adjusted basis unless otherwise specified. And I would also like to remind you that we kindly ask you to limit your questions during the Q&A session to a maximum of two. And with that, let's get started and over to you, Yves.

Thank you, Christian, and also from my side, a warm welcome to all of you. Thanks for joining our call today and thank you for your interest. As you will have seen from our press release this morning at Hugo Boss, we look back at a solid start to the year with further top and bottom line improvements in the first three months of 2024. As in previous quarters, Our performance in Q1 is a direct consequence of our relentless focus on executing our Claim 5 strategy. This includes placing particular emphasis on further leveraging our company's numerous growth opportunities across all business areas. Consequently, revenue increased by 6% year-over-year to surpass €1 billion, with both brands, all regions, and all consumer touchpoints contributing to growth. Third, by our top-line momentum, EBIT expanded by 6% to €69 million as further investments into the business were more than compensated by our commitment to further enhancing the effectiveness and efficiency of our global business, be it from an operational but also organizational perspective. This in turn enabled us to improve our first quarter EBIT margin by 10 basis points to a level of 6.8%. Of particular note is the fact that we achieved these results despite ongoing heightened macroeconomic and geopolitical volatility. I will discuss the external circumstances in more detail later on. But first, let's focus on the various moving parts of our operational and financial performance in Q1, starting with a closer look at our two brands. Earlier this year, we unveiled our spring-summer 2024 collection for Boss, once again fully embodying the brand's 24-7 lifestyle image. As in the past, the launch was accompanied by a global campaign featuring renowned celebrities such as top model Giselle Bündchen and Korean superstar Lee Min-ho. The collection launch was extended by an impressive digital brand campaign with unique out-of-home activations in ICANN locations around the globe, including London's Tower Bridge, New York's Times Square, and the Champs-Élysées in Paris. This is yet another prime example of how we keep driving brand momentum, leveraging the potential of digitalization and marketing, and elevating the customer experience. Fueled by this 360-degree activation, Boss continued to outperform key competitors on Instagram in terms of follower growth and Q1. Moving over to Hugo, where we also successfully unveiled our summer collection just a few weeks ago. The launch included the highly anticipated debut of our new brand line, Hugo Blue, and aimed at leveraging the full potential of denim in the years to come. We celebrated Hugo Blue with a big launch event in Berlin, tapping into the worlds of entertainment, metaverse, and gaming, key cultural domains for the brand's Gen Z target audience. And let me also emphasize that we are very happy with the first weeks of selling this new brand line, and it is well received by both our wholesale partners as well as our young-minded Hugo consumers. Finally, high-profile collaborations provided further support to the overall momentum in the first quarter. In this context, we are happy to welcome U.S. athlete Taylor Fritz as a new brand ambassador for our boss menswear business, further strengthening our presence in tennis. And as part of our boss womenswear business, we launched our first capsule collection co-designed with fashion icon Naomi Kempel, recording the buff average sell-through rates. Hugo, on the other hand, took a bold step into Formula One, bringing its authentic style to motorsports fans around the world. Altogether, these initiatives supported brand momentum during the quarter and resulted in further revenue improvements across both our brands. Equally important and no different to last year, growth was broad-based across all varying occasions, reflecting our brand's 24-7 lifestyle approach. Overall, sales were up 5% for Boston Menswear, up 7% for Boss Women's Wear, and up 9% for Hugo. Let's now move over to our regions, which all recorded further revenue improvements in the first quarter. Growth was led by the Americas, with revenues up 11% in the three-month period. Above all, this reflects double-digit sales increase in the important U.S. market, where our brands drove broad-based growth across all the three distribution channels. Also, in Latin America and Canada, we maintained our growth trajectory as reflected by robust sales improvements in both markets. Shifting focus to EMEA, where sales increased by 5% year-over-year with different performances across key European markets. While we recorded robust sales growth in Germany, revenues in the UK remained below the prior year level, reflecting an overall soft consumer sentiment. Sales in France, on the other hand, remained broadly stable year over year, being up against a particularly strong comparison base from the prior year period. To finish on EMEA, we continued to enjoy solid momentum in our emerging markets, including Eastern Europe and the Middle East, as reflected by the double-digit growth year over year. Finally, on Asia-Pacific, where sales came in 4% above the prior year level, Growth was driven by sustained double-digit improvements in Southeast Asia Pacific, including yet another strong performance in Japan. At the same time, sales in Greater China remained below the prior level, reflecting overall muted local demand. To conclude on our top-line performance, let's move on to our channels, which all contributed to growth in the first quarter, posting further sales improvements. starting with our digital business, which successfully continued its double-digit growth trajectory. With sales up 10% and broad-based momentum across all three regions, both Boss and Hugo gained further market share in the digital sphere. Importantly, both on our digital flagship HugoBoss.com as well as our digital partner business drove further revenue improvements in the first quarter. We are thus continuing to live up to our promise of meeting our customer exactly where they expect us to be. Moving over to our brick-and-mortar retail business, which grew 3% in the first quarter. This development reflects further store productivity improvements as well as moderate space expansion over the past 12 months. From a regionalist perspective, momentum in brick-and-mortar retail was particularly robust in the Americas, with sales up at a double-digit rate. And while Asia Pacific also contributed to growth, brick-and-mortar retail revenues in EMEA remained on the priority level. In brick-and-mortar wholesale, revenues expanded a strong 8% in the first quarter, emphasizing wholesale partners' ongoing robust demand for our brand's collections. This, in turn, enabled both Boss and Hugo to further improve visibility and penetration at key European and U.S. department stores. At the same time, growth in wholesale was supported by the expansion of our global franchise business over the last 12 months. With this, let's now move on to the remaining P&L items, starting with our gross margin, which remained on the prior level on Q1, adding up to a level of 61.4%. This development was supported above all by enhanced efficiency in our global sourcing activities. As outlined in detail back in March, these efficiency gains underscore our increased focus on maximizing the potential of our strong operations platform established as part of our Claim 5 strategy. In Q1, this included achieving even greater economies of scale in sourcing, alongside additional optimization and vendor allocation in freight modes, notably by reducing reliance on air freight. Coupled with more favorable product costs year over year, these efforts provided substantial tailwinds to gross margin development in the first quarter. In doing so, we were able to compensate for an adverse channel mix effect, as well as ongoing elevated levels of promotional activity. On top of that, we recorded some unbearable currency effects in Q1. Moving over to operating expenses, which increased 5% in the first quarter. This development mainly reflects higher selling and marketing expenses, more than offsetting a slight decline in administration expenses. At 54.6%, however, total operating expenses as percentage of sales came in 10 basis points below the prior year level. This development largely reflects improvements in organizational effectiveness, which compensated for further investments into the business. Overall, selling and marketing expenses increased by 7%, mainly due to an increase in variable rental, payroll, and fulfillment expenses in light of our top-line development. Marketing investments, on the other hand, came in somewhat below 2023 levels, reflecting our focus on further enhancing marketing effectiveness as well as some large-scale brand initiatives in the prior year period. This said, at 7.5% of group sales, marketing spendings in Q1 were once again fully in line with our mid-term target range of between 7% and 8%, as set out in Claim 5. Importantly, and also when looking at our expectations for the full year of 2024, we continue to target marketing investments within this corridor, as we remain committed to further investing into brand-building activities. To conclude on the operating expenses, administration expenses decreased 2%, supported by the aforementioned improvements in organizational effectiveness. Altogether, inspired by our solid top-line growth in Q1, group EBIT increased 6%, mounting up to 69 million euros. Accordingly, our EBIT margin expanded by 10 basis points to a level of 6.8%. Likewise, net income after minorities increased year-over-year up 9% to 38 million euros. This also reflects a broadly stable financial result over a three-month period, as higher interest expenses were largely compensated by more favorable forex. And last but not least, and to conclude on the P&L, earnings per share were up 9% to 55 cents in the first quarter. Let's now turn to the balance sheet, starting with inventories. And as you know, tight inventory management is a key priority within Claim 5. And while we continue to be satisfied with the overall composition and quality of inventories, we remain committed to optimizing inventory levels in 2024 and beyond. On that, I'm pleased to report that in the first quarter, we were able to bring down inventories by 2% currency adjusted versus the prior year period. Consequently, also as a percentage of group sales, inventories have seen a further sequential improvement in Q1, coming in at 24.4%, and thus well below the prior year levels, while also further improving compared to the end of fiscal year 2023. This progress, fully in line with our mid-term ambition of reducing inventories to below 20% of sales by 2025. This brings me to trade networking capital, which increased 14% currency adjusted. This development largely reflects higher trade receivables, mainly related to the robust performance of our wholesale business. In addition, trade payables came in below the prior level, primarily reflecting our measures to reduce core merchandise inflow. Overall, the moving average of trade networking capital as a percentage of sales based on the last four quarters amounted to 21.2%. Going forward, and supported by the anticipated further normalization of inventories, remain confident in our ability to improve this ratio to a level of approaching 20% by the end of fiscal year 2024. This, in turn, will be an important milestone towards our mid-term target corridor of 16% to 19%. Moving over to capital expenditure, which increased 15% year-over-year to an amount of 47 million euros in the three-month period. This development is fully in line with our CapEx budget of 300 to 350 million euros for the full year 2024. As in previous quarters, In Q1, our focus was also on enhancing our global store network, pushing ahead with digitalization of our business model, and strengthening our global logistic capacities. Last but not least, free cash flow amounted to €30 million, representing a robust improvement of €133 million year over year. This performance reflects our EBIT growth in Q1 and, above all, the ongoing optimization of inventory levels, which supported our free cash flow generation in the first quarter. Now, as laid out in March already, and based on the progress achieved in Q1, we remain committed to further accelerating our cash flow generation through our 2024. In particular, we expect that the ongoing optimization of trade networking capital, as well as our persistent focus on driving CapEx efficiency, will keep fueling free cash flow generation in the upcoming quarters. Consequently, we continue to anticipate that our free cash flow will improve to a level of around 500 million euros in 2024, aligning with our overarching annual midterm goal outlined in claim five. This, ladies and gentlemen, concludes my remarks on our first quarter operational financial performance. Let's now move over to our expectations for the remainder of the year. Based on our solid performance in the first quarter, today, we confirm our top and bottom line outlook for the full year 2024. Following almost three years of successful strategic execution, our company and our two iconic brands, Boss and Hugo, are in a strong position to keep capitalizing on our various growth opportunities. The ongoing execution of our numerous strategic initiatives will therefore remain our clear priority and continue to guide our way ahead. At the same time, we will build on our robust foundation established in prior years, enabling us to put an even stronger focus on driving effectiveness and efficiency moving forward. In doing so, we must not forget that macroeconomic and geopolitical uncertainties remain high. This is particularly true for key European economies, including the UK, where most consumers keep adjusting their purchasing habits. Additionally, China's economy continues to face challenges in recapturing its former momentum, compounded by consumer confidence remaining at historic lows. And while it's difficult to predict how these trends will emerge, at this point of time, we remain vigilant. As things stand today, we must anticipate ongoing implications on global consumer sentiment, which are likely to weigh on industry growth also in the coming weeks and months. This in turn may affect our performance in the second quarter, which in addition to ongoing volatile macro trends, is confronted with a particularly difficult comparison base. Overall, we continue forecasting group revenues in the fiscal year 2024 to increase by around 3% to 6% in reported terms to a level of around 4.3 to 4.45 billion euros. This includes our expectations of currency having a slight negative impact on our top-line development also in the remainder of the year. At the same time, we continue to anticipate EBIT to grow faster than sales also this year, projecting growth of between 5% and 15%, to a level of around 430 to 475 million euros in 2024. This means that our EBIT margin is expected to grow to a level of between 10.0 and 10.7% in the current fiscal year. Our bottom line target will be driven in particular by realizing further efficiencies in sourcing. This should become increasingly visible starting with the second quarter and provide greater support for our gross margin over the course of the year. As a result, we remain committed to improving our gross margin to a level of between 62 and 64% in the fiscal year 2024. Ladies and gentlemen, this concludes my remarks for today. Before we get started with the Q&A session, let me summarize in saying that in light of our solid start to fiscal year 2024, we are well-positioned to realize further top and bottom-line improvements in 2024. In a global market environment that continues to be volatile, we remain all the more focused on rigorously executing our Claim 5 strategy, while at the same time putting particular emphasis on driving further efficiencies. And with this, we are now happy to take your questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from Grace Morley from Wong Stanley. Please go ahead.

Thank you for taking my questions. I have two, please. The first one would just be, Eve, I heard your comments there at the end flagging the very tough comparison base in Q2. Could you perhaps just comment on what you're seeing in the exit rate in trends as you exit Q1 in March, what you've seen April to date, and therefore how we should be thinking about Q2 constant currency growth given that comparison base? I think consensus currently is looking for around 5% constant currency growth in Q2. And then my second question would just be on the promos. You mentioned again that promos were a headwind to Q1 gross margin. Could you perhaps help us with sizing that and how that compares to the magnitude of pressure you saw from promos in Q4? And then just as you look at your outlook for the full year, what that's embedding in terms of promotions. So if they do continue into Q2, whether that's already embedded in your guidance. Thank you very much.

Yes. Good morning, Grace. Thank you very much for your two questions. So I might start with talking about the exit rate. So if you look at the D2C business, I can say that the market was more or less on the level that we have seen in Q1. So no further difference. If you look at the April numbers, so we have now 30 days of trading into the Q1, which is like 90 days. So once that is done, we see a continuation of normalization of net sales. So this means that the current trends that we have seen are somewhat below the average we have seen in Q1. If you talk about the gross margin in terms of promotions and sizing, I can say that you can say that the tailwind we have generated in Q1 in terms of gross margin improvements coming from less air freight and coming from better product cost or solid sourcing efficiency. This is good for around, let's say, 200 basis points positive. And then you have three points that are somehow negative. This is one is the channel effect. The other one is the currency. And the latest is promotion activity. So all more or less contributing the same amount. So you might say between 60 and 70 basis points was the promotion activity. This quarter higher in comparison to last year. There you can see already a slight improvement versus Q4 2023 in our numbers. But of course, I mean, we talk about winter sales and winter sales stopped actually by at the end of January, beginning of February. So you see that the period of promotions was less pronounced in Q1. And Q2, it's too early to call because Q2 is usually a kind of clean period of almost hardly no promotion activity, so it's hardly to judge. So actually, we see that there was higher promotion activity in Q1. We see that a lot of competitors are destocking a lot of inventories like we are doing. So it's, I think, very difficult to judge what will be the ongoing activity. development for the next quarters to come. The good news from my point of view is the magnitude of promotional activity affecting our gross margin are somehow controllable, this is point one, and we see actually that the efficiency gains that we want to see are materializing in the improvements on our gross margins. So overall, we are pretty confident that we get into this range between 62 and 64% in the full year for 2024.

Okay, thank you. And if I could just follow up on the first one in terms of the normalization you're seeing in April. I know you have a tougher comparison base in Q2 in general. Is it tougher in April specifically? And is there any impact within that because of the earlier timing of Easter year over year. And then also just that normalization in April, if there's any trends you could call out by region, that would be very helpful. Thank you.

So overall, I mean, the comparison base in April was, in our case, extremely tough because we had a very good April last year. And overall, if you look at the comps for the full quarter, it's going to be a very tough comparison base. You know our growth rates last year. If I just maintain, actually, you know, the performance Q1, Q2 stable versus a five-year stack comparison pre-COVID, where we would be growing above 50%, this would mean that we will see a kind of continuation of normalization of net sales if you just compare these numbers versus a five-year stack basis. So there you can really see that our Q2 2023 was very strong, and that was a very strong comparison base.

Okay, thank you.

And the next question comes from Manjari Da from RBC. Please go ahead.

Thank you. Morning, Yves. Morning, Christian. Thank you for taking my questions. I also had two, if I may. My first question is on the U.S. I just wondered if you could give some more color on what you think has been driving the strength of the growth in the U.S. in Q1 and how you expect these drivers to trend for the remainder of the year. And my second question is just on marketing and marketing spend. I wondered if you could give some more color on the initiatives being taken to enhance marketing effectiveness and if the lower level of marketing as a percentage of sales is something we should expect to continue for the remainder of the year. Thank you.

So, perhaps starting with your first, first of all, good morning, Majore. Thank you very much for your questions. Talking about the U.S., I think our performance overall in NCSA plus 12% is really spectacular. It's a clear outperformance versus competition. I think all the measurements that we have taken in the past, positioning Boss as a 24-7 lifestyle brand, investing into the stores, investing into younger consumers are really paying off, including our campaign, Bosses Are Not Born, Bosses Are Made, So there, especially with our CRM program, retargeting younger consumer, we saw really a big resilience of consumers and coming back to Boss and Hugo for both brands. So I think the performance in Q1 was really strong. And I think this is above our own expectations. We view this over the year that things in the U.S. might normalize as well because of some uncertainties because of the election in the U.S. We have to see this. I think it's still too early to call. Still, we are very happy with our U.S. performance. So talking about marketing spendings, by the way, we are at 7.5% exactly in line, what we have always said, where marketing spending should sit between 7% and 8%. And if you just conclude what we did, we had the launch of the BBB. We had our big campaign with the hologram at Tower Bridge. I think this Tower Bridge Times Square. We have a new brand ambassador, Taylor Fritsch, which supports sports overall in tennis and the U.S. because he's a U.S. guy. We had our collab with Nomi Kempel. We had the Hugo Blue launch in Berlin. So Daniel is just now in Miami for the inauguration of the Hugo racing team in Formula One. So we are still investing heavily into the brands, but we try to do it in a very wise way and try to focus on activations And really our idea is to get more out of one euro spent. This is what we mean by marketing spent effectiveness. You might recall that we last year we had our big fashion event in marketing. This time of the year we had our holograms in different cities around the world. So we try to be very innovative and try to be more effective once we come to marketing spending. I think this is a very normal development, and still you have our commitment that we are investing into our brands. And 7.5% is, I think, a good number, which you can calculate for the ongoing quarters.

Great. Understood. Thank you very much.

And the next question comes from Anthony Shafai from BNP Paribas Exxon. Please go ahead.

Yes, thank you. Good morning. It's Anthony Shafai from BNP Paribas. Just two questions. So the first one, if you said that the gross profit margin should be between 62% to 64% in the full year, I mean, looking at the full year guidance of a maximum of 90 BIPs improvement at the EBIT level, it would imply that you expect some operating deleverage. Looking at the first quarter, I mean, the Brick and Mortar retail costs were up low teens on a low single-digit top line. So could you a bit share the cost base for the Brick and Mortar retail? I mean, if you see inflation on maybe rents and things like that. And my second question would be on the free cash flow. So you This morning you confirmed that you will reach close to 500 million by the year end. I mean, is it fair to assume that it's back and loaded? And also, do you foresee any reversal of the receivable and also the payable in the near future, or should it be really back and loaded? Thank you.

Good morning, Anthony. Thank you very much for your two questions. So I'm coming back to the gross profit or gross margin. I think, firstly, I think it depends on your own imaginations how far we go into this range. So I think it's just a hypothesis that we might have some leverage or deleverage. I just can talk about, you know, the Q1. And I think in Q1, we have seen the kind of normalization of net sales and still you have seen some operating leverage in our OPEX position. So we try to keep our cost overall well under control. If you look at the administration expenses that were even decreasing where you have seen some leverage there. So we are very mindful of this kind of normalization of net sales going on and we have to keep our our costs overall under control. And brick and mortar retail that you have touched, I think the progress that we have made over the last years from 26 pre-COVID to 21% brick and mortar fixed cost rates to group sales, you have seen that we manage our fixed costs pretty much down over the last years. And this will continue. So we are saying we want to go to 20% by the year 2025. So there is, I think, it's the question of how many stores you are renovating, of how much speed you give to this. I think this is somehow influencing overall your retail expenditures. And then regarding free cash flow, yes, first of all, I'm very happy about the improvements versus last year. We have seen 133 million euros more of free cash flow generation, including IFRS 16, so I think this development is good and you will see the biggest swing items is actually coming out of trade working capital. And I think overall receivables will be overall on an elevated level, but I think it's very likely that trade payables will increase over the next quarters to come.

Thank you.

And the next question comes from Frederick White from Jefferies. Please go ahead.

Good morning, Even Christian. Thank you for taking my question. First of all, could you run through your thinking or update us on your thinking on the scenarios for the guidance range, i.e. what would be required in your business in the maximum environment to achieve either end of the EBIT range? And then secondly, on that inventory reduction, it's very impressive. What Do you think you're now at an appropriate level for your own inventory? And do you have visibility on inventory at your wholesale partners? And is that in a similar position? Thank you.

Good morning, Frederick. Thank you very much for taking questions. So as I understood, your first question was around the different scenarios of guidance. I think overall we have a quite narrow range between 3% and 6% in reported currency and our EBIT as well. So I think for me it's actually too nitty-gritty going at the different scenarios. So I would not comment on this. Of course, you can imagine that there is a lot of macroeconomic uncertainties that we have factored in into our guidance, and this is the comment I would make. The second question was related to inventories. How are the levels actually on the wholesale piece? And I can really confirm that I think the best indicator that you can see is how good are your forward orders. And I can just confirm today that our forward orders look pretty good, almost in the same range like our performance in Q1. So we are overall happy about the sellouts and forward orders still look good and will support our development of our business.

Perfect. Thank you.

And the next question comes from Rogerio Fujimori from Stiefel.

Please go ahead. Good morning, Eve and Christian. Thanks for taking my question. I was hoping you could elaborate on the brick and mortar retail growth drivers. I understand your benefits from mid-single digit pricing Q1. So could you elaborate on how volume and mix evolved in Q1? And then I was hoping you could elaborate also on what you're currently seeing in the Chinese market in April and the outlook for growth embedded in your full year guidance. Thank you.

Well, regarding brick and mortar retail overall, to make it very simple, yes, there are some slight effects. still in Q1 overall it's volume growth and I think to simplify your models I think going forward you should always expect that the growth will be driven by volume and and and Overall, like I said during my short presentation, we really gained market share versus the competition in Q1. This was also visible. You see it actually with the wholesale partners where the business is very strong and actually the most competitive where we are gaining market share. So I think that was a very strong and solid performance from my point of view. But if you go into the year... Like I said, you should think of volume growth. We don't consider any price adjustment for the remainder of the year. And then you were talking about April in mainland China. So overall, I think, first of all, I think it's fair to comment that the comparison base in China was especially in the first four or five months. extremely high because of reopening story last year. You all know this. If you even compare our numbers versus pre-COVID at Q1, there were double digit above 2019. So overall, I think we are very much in line with how we perform with our competitions.

And the next question comes from Thomas Chauvet from Citi. Please go ahead.

Good morning, Yvan Christian. Two questions, please. The first one on brick-and-mortar retail at plus three. Could you give us the rough space contribution in the period? I think last year you had said square footage increased by about 5%. Is this substantially lower this year? In other words, I'm trying to try to understand the LSL versus space component of your plus three. Secondly, on the admin cost for $26 million, I think last year it was 10% of sales. Historically, it's been always at around 10% or slightly above 10%. Could you comment about the reduction in admin you had in Q1? with that 80 bps leverage, can that be extrapolated to the rest of the year, in which case you'll probably get 405 or 410 million admin charge this year, which is significantly below consensus. Thank you.

First of all, bonjour, Thomas. Thank you very much for your two questions. Regarding brick-and-mortar retail, we have seen the growth of 3%. First of all, I think it's worth mentioning that brick-and-mortar retail performance was somehow influenced by a negative development in China and UK. I want to call this out in order to put this into perspective. So there were two countries that were behind last year's performance, and this was driving the overall performance down, point one. Point two I want to make is if you take the 3% growth I would say half is space and half is actually growth by volume. So to really simplify this. And regarding administration expenses, I think it's, let me say it like this, we try to manage our, keep our OPEX for the full year overall under control. I think which is likely to see the overall operating margin to improve over the year is the fact that we're going to see improvements in gross margins in course of the year. And with the net sales normalizing, we try to keep overall our cost position under control not to show any deleverage there overall. So this is, I think, I would not go into each detail of position.

Okay, thank you, Yves. But in Q1, the reduction in admin expenses is real. It's a bit more structural, perhaps. There's no One-offs, it looks like this is due to the reorganization you've done over the past couple of years.

No, this is like general back-office leverage, these kind of things that we have in our admin expenses and nothing to call out in particular.

Thank you.

And the next question comes from Jürgen Kolb from Kepler Schiffer. Please go ahead.

Yeah, thank you very much. Two questions. First one, since we talked about China, I was wondering if you could also maybe comment a little bit on the UK, what you're seeing here currently, also maybe in terms of an exit rate that we're currently seeing, plus maybe also a comment on the footfall that you're experiencing in your own stores. Second thing, again, coming back on the OPEX line, Is there anything that you've additionally introduced in order to keep OPEX under control, given that maybe in the U.S. there is a bit more of normalizing of sales coming? Is there anything that you have on the agenda to push some initiatives backwards or anything in addition that you want to introduce what we haven't done or seen before? Thank you.

Thank you very much, Jung, for your questions. So first of all, talking about the UK, I think nothing to call out regarding exit rate. So the overall performance was weak in the UK because the consumer sentiment is down, interest rates are still high, affecting the footfall. So the footfall was actually driving the decline more or less in the UK. I think nothing specific regarding the collections. So it's more or less footfall in our own brick and mortar driving less sales there in the UK. And I have to highlight, of course, that the comp base in the UK was also very high. If you compare our numbers to 2020-19, we are still growing double digit. I think it's worth mentioning even for Q1. So the comp base was very high and is getting somehow a little bit easier in the course of the year. And regarding OPEX, I mean, we are highlighting this, that we try to leverage our own platforms, that we have a continued focus on effectiveness and efficiency. I talked about marketing. to leverage on the one euro spend to get the most out of it, focus on activation, less on content production. The same is true for back office functions that we are focusing on, for example, like shared service functions as well in order to drive efficiencies. So there are several measurements in place in order to improve our OPEX position over the years and to leverage on the platform to have a kind of, at the end, operating leverage contribution for our average margin. This is the target that we have, even in the scenario where we see some normalized, let's say, net sales developments.

Very good. Thank you very much.

And the next question comes from Michael Kuhn from Deutsche Bank. Please go ahead.

Yeah, morning. Thanks for taking the questions. The first one is on gross margin. You mentioned the 200 bps positive effect from forking and logistics, so let's say what is mostly under your control. Could you give some more details what to expect from that specific factor in the second quarter and for the remainder of the year, as you're also running into a little tougher comps there? In the second half, the first question and second question, there is also still the option of M&A. We haven't heard about that topic for a bit longer, I would say. Would you still see, let's say, a theoretical option of doing an M&A move over the remainder of the year? Thank you. Yeah.

Good morning. Thank you very much for your two questions. Perhaps I'm repeating myself now regarding gross margins. Of course, we have the visibility in terms of product cost for the upcoming seasons. I just want to highlight that the product cost, the efficiencies that we are generating because we have much more volume that we can buy, that we get better prices without compromising on the quality, we get further air freight shares down. So the visibility is, from my point of view, there. And this will put us in a good position to get into this range between 62% and 64% overall already in 2024. So this is the visibility that we have that is in our control. And I just wanted to give you the a kind of fantasy in terms of what can be the magnitude, and the magnitude was positive by 200 basis points already in Q1, and perhaps this is the number that you can work for the remainder of the year in terms of regarding these kind of improvements that we've seen already in Q1. Regarding option M&A, I think you should not expect any M&A activity in 2024 because you ask for the remainder of the year. If you might refer to the comments Danny was making, I think it's more like long-term related, talking our strategy until 2030. So short-term, because of all these uncertainties we see in the markets, from macro, from geopolitical, we're going to focus on our own business. It's more like related to long-term. The comment Danny was making or cited in the newspapers was more related to long-term activities. Good to hear.

Thank you.

Thank you.

And the next question comes from Andreas Riemann from OdoBHF. Please go ahead.

Hello, good morning if good morning Christian two topics who go blue Looking into the next two years. How big do you think who blue can become? Let's say in the year 25 and Second topic wholesale for this pre-order and reorder business both growing 8% or are there different trends? Here right now or maybe can you give an indication about this split pre-order reorder within wholesale? Thanks

So regarding Hugo Blue, I think, first of all, we are very happy with the performance. We have seen a lot of sold-outs, especially on online platforms, so we are really happy. So if you take the number for this year, we expect it to be mid-single-digit to high single-digit share in terms of Hugo. So if we might achieve this, this would be already, I think, a great success. and this share can be perhaps almost doubled by the next year in 2025 regarding Hugo Blue. And the second question was related, once again, was related to wholesale trends overall. Yes, you have seen 8% growth regarding pre-order business and replenishment business together. So if you say, well, the pre-order business, like 80% of the business replenishment is 20%, We have seen that pre-order business was stronger in Q1 than the replenishment business. However, we have seen a positive development at the end of Q1 that I can say regarding our replenishment business.

Okay, very clear. Thanks.

And the next question comes from Ben Rada-Martin from Goldman Sachs. Please go ahead.

Good morning, Yves, Christian. Thanks very much for the questions today. I've had two, please. First was just, again, on European wholesale. We saw quite an improvement in the quarter despite, I guess, you guys flagging a difficult macro and some negative updates from peers. I'm interested if you can maybe unpack some of the drivers here between new and existing doors and if there were any timing impacts within the first quarter. And then second is just a confirmation, Yves. I think you made the comment that you're happy with the order book for the remainder of the year with a similar level of growth to the first quarter. Just checking that's relative to the 8% that you delivered as a group. Thank you.

So coming to you, good morning. So first of all, regarding a second question, yes, I can confirm this to be high single-digit pre-order books. And regarding wholesale, there has been no timing or shifts or delivery changes. So I think it's a true result. And I think clearly it's a, I would say, three-quarter kind of three-quarter like-for-like performance and 35% of this growth can be like this, perhaps two percentage points can be attributed to further expansion of further POS within a department stores. And yes, and space relates for me as well for more franchise. We told you that we have increased our franchise business by 100 monobranded stores in course of the latest 18 months. So this is of course a kind of, let's call it space effect that driving our wholesale performance.

That's helpful, thanks.

And the next question comes from Susanna Putz from UBS. Please go ahead.

Morning. Thank you for taking my question. So just to follow up on the comments you've made on Q2, I just wanted to clarify something. So you've mentioned the Compass staffer for Q2 if we compare it to 2019. I wanted to follow up. How should we think at this stage if we assume that the momentum from April continues? Does it mean that in Q2 you're going to be at 1%, 2% growth? Any indication would be very helpful. And then secondly, you've mentioned again how we should look at comp and growth versus 2019. But if I'm not mistaken, if we actually do extrapolate the same rate of growth from Q1 into the end of the year versus 2019, then really H2 doesn't have much easier comp. I mean, effectively, you would still be growing at mid-single digit, which probably would bring us for the full year at the very lower end of your outlook. So combining it together with your comment on half of the growth in brick and mortar in Q1 being driven by space, I'm just wondering how much more room you have to control cost because obviously with mildly positive for like or slightly negative, it also becomes a bit more challenging to deliver on more margin improvement in H2. So these are my two questions. One is what kind of magnitude of growth we should expect in Q2 and how we should really think of Because, you know, like you were saying on one hand, the comp is easier, but then you're telling us it is tougher and you compare it to 2019. So, realistically speaking, you know, it is not that much easier in H2 for 2009, if we compare it versus 2019, if you know what I mean. Thank you.

So, Susana, thank you very much for your two questions. So, regarding the tougher comps, I was alluding actually to the Q2 numbers. So, especially Q2 in terms of... they're going to see tougher comps. And if you compare this to the five-year stack, if you just remain the same level, you would be at a low single-digit rate. So this is the comment overall. If you just say that the development in Q1 would be the same in Q2, and this is how it translates into tougher comps. This was the comment I was making. And I think overall it's too precise, and I think you still have to say it's very early. We're not in the beginning of March where you have already more than two-thirds of the business, so I think it's very early. It's only like 30 days of current trading. It's only one-third. I just want to highlight this, and still there is a lot of volatility ongoing in the market. And regarding your second question regarding costs, I think the improvements of operating margin expansion, is very likely to come from cross-margin improvements, as I already highlighted two or three times during the call now.

Thank you. But just to follow up on the comps, because I don't think I understood it very well. So the comp, I mean, you suggest we look at growth versus 2019 for Q2, and you're saying it's tougher for Q2. But if I exactly extrapolate the Q2 growth, versus 2019 for H2, then what I was saying is that the growth would be very similar to Q1, assuming trends aren't changed. So your outlook must, to me, either assume that things improve, in which case it would be just interesting to hear what do you bake in as an improvement on H2, or I'm just wondering, you know, if maybe there's actually a risk that, you know, because the market is volatile, things could get worse. All I'm saying is that if we take the, you know, growth versus 2019, and, you know, I get to the number of low single-digit in Q2 and extrapolating exactly the same momentum, so not assuming it gets better into H2, we still get to mid-single-digit growth in H2, so not that much higher growth than in Q1. So I just want to understand what is meant to improve that in, you know, your outlook for the full year is where it is, because that would mean things must get better.

Susanna, this is Christian speaking, and I allow myself to jump in here because I think Yves commented on that Q2 topic twice. We have not made any specific H2 comment, which Yves will not make. Obviously, you have your model, you have the comps that you can work with. We have today reconfirmed our full year guidance following a solid start to the year. We feel comfortable with our full year guidance. and we will not make any further precise comments on the second half of the year. And I think on Q2, Yves was very precise in his wording. So thank you for that. I'm very happy to follow up in detail because that was a long question, I guess, with a lot of numbers, and we can speak about that later on. So thank you, Susanna, for that detailed question. And thank you, everyone, for dialing in. And this completes today's conference call. As always, there's a few more that wanted to ask questions that didn't get a chance, unfortunately, due to long questions in the queue. And I would like to thank you very much for dialing in, for your interest in Hugo Boss. And as always, the Investor Relations team is very happy to follow up with you this afternoon. Thank you, and goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.