Mark Langer - CFO

Antoine Belge - HSBC Juergen Kolb - Kepler Cheuvreux Claire Huff - RBC Capital Markets John Guy - MainFirst Bank Thomas Chauvet - Citigroup Luca Solca - Exane BNP Paribas Warwick Okines - Deutsche Bank Melanie Flouquet - JPMorgan

Thank you very much and good afternoon, ladies and gentlemen, and welcome to the presentation of our first quarter results 2016. The premium apparel industry had a difficult start in to the year.

The same is true for Hugo Boss. Cautious customer spending globally and some specific challenges, in particular, in the U.S.

market had a significant negative effect on the Group's top and bottom line development. Nonetheless, we made important progress in our initiatives to protect margins and cash flow.

At the same time, we started implementing some far reaching changes to brand and price positioning in the U.S. and Chinese market, respectively.

But let us start with our largest region Europe. Here, sales declined by 1% in currency adjusted terms, affected by a notably weak month of March.

Tourism played a negative role throughout the quarter, with particular weakness amongst the Chinese clientele among -- against a very touch prior year comparison base. However, the business was local which accounts for around 85% of sales in the region also, moderated compared to the 2015 level.

By market, the UK continued to outperform and grew by 4% in currency adjusted terms. In Italy, sales were even up at a double-digit rate.

Germany recorded a mixed performance with sales declining by 2%. Wholesale outperformed on retail here, underlying the sustained positive reception of our change of distribution strategy implemented last year.

The Benelux and France were among the weakest performing markets regionally, clearly affected by the terrorist attacks, and the resulting drop in tourism. In the Americas, performance differed significantly by market.

Our business in Canada and Central and Latin America grew at double-digit rates. The latter in particular benefitted from a repatriation of local demand, following region-wide currency depreciation.

Sales in the U.S. however, declined by 16% in currency adjusted returns, so that the overall region was down 8% in the quarter.

The double-digit sales decline in our U.S. wholesale business is indicative of the difficult state of the overall market, on the one hand.

As a result of weak sell through over the course of the second half of 2015, in particular, most retailers are buying very cautiously at the moment. On the other hand, we have started scaling back our off-price business in the wholesale channel, although the related sales impact has still been relatively small in the quarter.

We are also in the process of implementing the category migration concept so we are reducing the exposure of the Boss core brand in multi-brand spaces in exchange for Hugo and Boss Green. This substitution will become visible on the floors of partners, such as Dillards and Lord & Taylor over the summer.

At Macy's, this change was implemented in February. Responsibility for the entire Boss core brand business at Macy's, now limited to eight shop-in-shops in key flagship locations, as well as an online concession, has been transferred to us, and we are busy upgrading store concepts, the assortment, and the quality of staff.

Admittedly, however, current weakness in the U.S. is not limited to the wholesale channel.

On retail, we suffer from substantial like-for-like sales declines, predominantly related to a double-digit decrease of visitors. As a result, we are intensifying our efforts to improve the in store experience, including the rollout of more personalized service options and the expansion of omni-channel services.

In Asia, overall sales were down 5% in currency adjusted terms. Momentum continued to be positive in Japan.

Some smaller markets such as South Korea, also grew very strongly. In the key Chinese market there was light and shadow.

Overall sales were down 11% in local currencies here. In Hong Kong and Macau, the decline was even much more pronounced.

On the Chinese Mainland however, trends improved compared to the end of last year, although we had lowered prices by another 20% with the launch of the spring, summer 2016 collection in January. On a comp store basis sales on the Chinese Mainland were still down in the high single-digit, purely reflecting the impact of the price adjustment.

However, traffic stabilized and volumes were up around 10% compared to the prior year. In the first weeks of -- in April, this trend even accelerated.

We attribute this to the following factors. First, the price adjustment and its consistent in store communication helped us activating existing customers more affectively.

In addition, we are now addressing an additional group of aspirational customers, for whom the brand had been seemingly unaffordable in the past. Second, we significantly we changed our marketing strategy to prioritize digital over print.

Employing Wallace Huo, one of the most popular actors in the country as a spokesman for our Man of Today campaign, we generated unprecedented brand interest and drive to store. As an indication, the number of users following us on WeChat has quadrupled within just a few months.

And third, we benefited from some repatriation of local demand. Our offer to Chinese customers visiting our key stores in Europe and other parts of Asia to register with us on WeChat and make alteration free of charge in their local store back in China, has been well received and we will exploit it cross-selling opportunities.

By distribution channel, own retail sales, we're up 1% in local currency terms. The sales contribution from openings and takeovers in 2015 and in the first three months of this year more than offset a comp store sales decline of 6%.

The latter was primarily related to weaknesses in the U.S. and Greater China, which caused like-for-like sales in the Americas, in Asia-Pacific to decline at a low double-digit rate.

The European business was in slightly negative territory on this metric. The Group's overall comp store sales decrease was mainly driven by lower traffic.

The price adjustment in Asia had a comparatively smaller impact. Unlike in previous quarters, online only performed in line with the rest of own retail.

This was due to the overall slowdown in our business but also the fact that the pace of on-site innovation has temporarily been slowed ahead of the in-sourcing of online fulfillment and the major site upgrades scheduled for August. Since yesterday, we have taken over sole responsibility for the fulfillment of our European operations from our partner Arvato.

The transition progressed very smoothly helped by extensive testing over the last few months. We now focus our resources on offering omni-channel services as quickly as possible.

In August we will launch pilot of click and collect and in store online ordering in the UK, followed by the full implementation of the services in all European online markets later in 2016 and 2017. With regard to physical retail expansion, we opened 12 new freestanding stores in the first quarter, most of them in Europe.

In addition, we took over four stores from franchise partners, including three in Malaysia. Net of closures, the number of freestanding stores increased by 8 to 438 at the end of March, as communicated at the analysts' conference, the pace of retail expansion is going to slow over the further course of 2016.

Following the review of our store opening plans, we will only expect to open another around 15 freestanding stores this year. This includes several cases where we relocate our presence within the same retail area.

At the same time, we are also analyzing the performance of those 10 to 20 stores, which had the most dilutive impact on retail margins in 2015. Pending the negotiations with landlords currently ongoing, we will most likely close several locations in order to improve the structure profitability of retail operations.

We will update you on our findings latest in August at the time of the half-year results' presentation. First quarter wholesale sales declined by 9%, in line with our full year outlook, this was predominantly due to the U.S.

where cautious ordering and weak short-term replenishment demand dragged down performance in addition to the effect from converting part of the Macy's business into own retail. However, in Europe as well the negative overall market sentiment weighed on demand.

Finally, the license business was up at a double-digit rate, also benefiting from a positive delivery shift, which we don't expect to recur. However, also on an underlying basis, the fragrance business in particular developed very well.

Boss, The Scent, continues to play a major role in this respect. Launched in autumn last year, it has helped us achieving overall market leadership in Germany now, for example.

However, good growth in male fragrances was not enough to lift our overall menswear business in the first quarter. While this had to do with many rather cyclical market related factors discussed earlier we strongly believe in the need to continuously strengthen the brand in what is the DNA of Hugo Boss.

We do so in different ways. First, the recent appointment of a Managing Board Member exclusively responsible for brand and creative, underscores the importance the Company is placing in this area.

Ingo Wilts combines creativity with a strong business acumen. While he knows the Company inside out from his previous assignments here, Ingo also brings in a fresh perspective from his experience at major U.S.-domiciled peers.

Second, we decided to reallocate a sizeable portion of our marketing spend back to menswear. In the wake of this change, the importance of digital is only growing further.

And third, based on a review of sales productivities in our own retail network, we will expand the retail floor space allocation to menswear again, in particular in the U.S. market.

To make this very clear, this does not change our commitment to women’s wear. Boss women’s wear has prospered under Jason Wu's artistic direction, and gets enormous recognition from the press and our customers.

We will continue on this journey, and we remain dedicated to investing in the opportunity that women’s wear represents. However, we will carefully balance these investments with the goal of maximizing overall commercial performance, acknowledging the paramount importance of our menswear business.

In the first quarter, overall women's wear sales were down 4%. The Boss women's wear business continued to perform better than the overall segment.

Let me now go through our quarterly results in more detail. Gross margin was 140 basis points, year-over-year, and reached 64.1%.

An increase of rebates, mainly in the U.S. market, and inventory write downs, were the main reasons for the decline.

The latter was due to the scrapping of old inventory taken over from previous franchise partners in the Chinese market. As a result, we now have significantly more flexibility in this market to adjust our merchandizing to the new price and strategy.

This implementation has just had a smaller negative impact on gross margin development in the quarter. The first result of our cost saving initiatives led to a more moderate operating expense growth compared to the prior year.

Supported by the first benefits from the successful renegotiations of store rental contracts, mainly in Asia, as well as by a slight reduction of marketing expenditure, the increase of selling and distribution expenditure was limited to 5%. G&A expenditures were up 6%, reflecting our measures to digitalize our business model.

Obviously though, tighter cost management was not enough to avoid significant operating deleverage related to the weak top-line development. As a result, EBITDA before special items declined by 29% to reach €93 million in the quarter.

Also, considering special items of €7 million mainly associated with the change of management, as well as the 20% increase of D&A, EBIT and net income dropped by almost 50%. By region, profitability in Europe held up relatively well considering that the reported margin decline of 270 basis points includes the substantially negative currency impact related to the around 30% share of sourcing denominated in U.S.

dollar terms. In particular, we reduced rebates in our European business in the first quarter.

In contrast, currency continues to have a favorable impact on American profits. Excluding the supporting effects on the appreciation of the U.S.

dollar, recent profits would have been down more severely. Higher rebates and operation deleverage owing to the weak top-line were the primary factors here.

The same effects were also at work in Asia Pacific, coupled with the negative gross margin effect in connection with the price adjustment and the inventory scrapping in China, the regional margin dropped significantly, by almost 13 percentage points in the first quarter. Turning to the balance sheet, we continue to improve working capital management sub sequentially.

The just 1% increase of inventories in the first quarter represents the lowest growth rate since the last 10 quarters. Tight merchandise management, and cautious planning of sourcing and production was instrumental in this respect.

With the inventory scrapping in China we are now clean in this market, and even in the U.S., the pressure from having too much stock has eased considerably. Investment activities also started moderating compared to prior year level, although the reduction of capital expenditures in the first quarter was still smaller than what we expect in the full year.

Investments in the first three months predominantly focused on own retail. However, while store renovation expenditures increased, spending for new openings declined a pattern we also project for the full year.

The improvement of working capital management offsets a decline of earnings, so that free cash flow now flow developed even slightly better than in the prior year period. Nonetheless, net debt was still up compared to the levels achieved at the end of March last year.

Improving free cash flow remains a key goal in 2016. To this end we have reviewed all non committed investment plans as outlined at the analysts' conference in March.

In addition to the cancellation of several store openings, we also decided to streamline our IT investments. Here, we will focus our resources on the fast implementation of fewer projects, prioritizing those most critical for the digital transformation of our business.

Also, factoring in the postponement of some expansion projects at the group headquarters, we now expect investments in 2016 to amount to €160 million to €180 million, compared to €220 million last year. We also made progress with the cost review announced in March.

We have now identified cost savings of around €50 million compared to our original budget for the year. The successful renegotiation of store rental contracts, the tightening of operating overhead cost management, and the streamlining of marketing initiatives will contribute the lion's share to these savings.

However, unchanged to our previous plans, we will continue to invest in the growth of digital. Our sales and profit outlook remains unchanged.

We continue to project group sales to increase at a low single-digit rate in currency adjusted terms, driven by growth in Europe and the own retail channel. This implies an improvement of trends, predominantly in the second half of the year.

In addition to an easier comparison base, we also expect the various measures we are currently implementing to take effect. Gross margin is projected to remain on prior year's levels in 2016 as a whole.

Compared to the first quarter we expect performance to improve in the quarters to come. A reduction of rebates in combination with further optimization of the inventory position, the ongoing quality upgrade of our U.S.

distribution, and a positive channel mix should drive this. Nonetheless, EBITDA before special items is forecast to decline at a low double-digit rate.

While the cost savings identified will help cushioning the effect from weak top-line trends, we still expect considerably operating deleverage in 2016, even factoring in stable own retail like-for-like trends in the year as a whole. Ladies and gentlemen, the result of the first quarter highlights the challenges we are currently facing.

Obviously, we won't be able to change overall market conditions. However, we know where we will have to improve our business in order to bring Hugo Boss back on growth track.

Our measures in the U.S. and Asia will strengthen the consistency of our global brand, and price positioning.

Our focus on digital will greatly enhance the brand and shopping experience for the benefit of our customers. There's clearly a lot of work to do, so 2016 will be a difficult year of transition.

We are pressing ahead with these changes, but we will also have to accept that returning to profitable growth is not a quick fix in light of the current market backdrop. Nonetheless, I have been impressed by the energy and determination of our people to turn things around.

The passion for the brand and the Company that I have come across in the last few weeks is an important reason for my confidence in the Group's long-term outlook. I will now be happy to take your questions.

Three questions. First of all, I understand the logic behind you maintaining the EBITDA guidance given the cost saving program.

I'm a bit -- it's a bit more difficult for me to understand how you can have a flat retail like-for-like over the full year after a minus six in the first quarter? And I understand that actually the basis of comparison in Q2 is not that easy.

Second question relates to Europe. Europe was the region which was holding quite well.

I think when you -- we last discussed Europe it was still growing, so obviously March was very tough. Are you seeing a continuation of that in April?

Again given the basis of comparison what makes you consider about Europe for the remainder of the year? And finally on the cost savings, of 50 million, I think you mentioned some rents renegotiation.

How are you going to achieve this? Is it a big part of the cost reduction?

I saw in the press release it was mentioned that some marketing cost could be revised down. So how the marketing to sales ratio you expect it to evolve this year, will it be down year-on-year?

Thank you.

Let me start with the first one. As we indicated in this call, we have experienced a weak like-for-like trend in all markets.

We have seen some improvement in China, despite the price adjustment which per se would have been a significant drag on like-for-like performance also in the Chinese market. So we do have indication that some of the measures that we have implemented, and we'll continue to implement for the remainder of the year will have a positive impact to our business.

So as we indicated, reviewing format allocation in our stores between menswear and women’s wear, between different price points, we are quite confident that some of these measures were not to be used in the first six months of the year but we will still have a positive contribution based on the reviews that we have gone through over the last couple of weeks, that we have a better in-store execution. Driving customers to our store is an important element as we explained in the call.

We have not lost on conversion rate or basket size necessarily, this -- rather the opposite contributed to the success. But we need to intensify and improve our offers to bring customers to our store that's where your first question also relates to your third one.

The new focus that we have brought to our marketing spendings, as we explained in the call, especially from measures that will be effective for the second half of the year, we have prioritized this part of our marketing plans, and given more resources that have demonstrated in the past that they will allow us to drive customers to our stores. CRM is a key element to that.

The integration of our digital and physical distribution is another part, so we also expect now that we have successfully passed the milestones in sourcing online fulfillment. We have an industry-leading infrastructure in place that will allow us to take even more advantage of offering our customer seamless experience.

So you see there's many elements that we are implementing, which I would qualify as self-help globally, but clearly this is against a challenging market drop. So just betting on an easier comp as we will have especially in the second half, and the US might be supportive, but we predominantly expect an improvement in like-for-like development for the full year to come from the effect of the measures that we have implemented.

Europe has weakened. Strong markets like the UK were still up.

Also Italy, we were pleasantly surprised. However, in total, in particular due to the weakness that we experienced in the first quarter in France and Benelux slipped into negative territory.

I think we mentioned some of the elements that have affected our European business, especially those parts, especially in France, where the -- predominantly part of our business was in -- or continues to be in Paris. But, also, Brussels clearly affected in the aftermath of the tourism effect.

We are seeing quite a significant decline in tourism, which was also affecting our numbers. Again, from the European trading trend, I expect this region to benefit most from the in-sourcing of online fulfillment, which is focused on the EMEA region, where we expect an acceleration to the rather low single-digit trend we're seeing in the first quarter.

Already, as a part of your third question, I think you touched on two parts of our cost saving initiatives. One was rent reduction.

We already have secured a successful rent review globally in some markets. So this has helped us to moderate the increase in operating costs in the first quarter.

We are, and this will not come as a big surprise to you, in very tough negotiations, especially on larger store operations, where we have clearly flagged since the analysts' conference that we are willing to, ultimate, the decision to close the store if we are not successful in renegotiating rental levels. So the analysis on these 10 to 20 most dilutive stores is completed.

We have for all of these stores developed, with our regional and country management, a clear plan for what to achieve to continue to operate at these stores. In some of these stores, as we have already indicated, we do not expect an outcome to that, so it's rather negotiation on the exit, the sublease construct, return to the current landlord, which is something that has to be done swiftly, but also with diligence.

But we expect these measures to be fully implemented and decided and also on the impact it might have, in terms of non-recurrence in the second quarter. Marketing will be significant reshuffled in composition.

As I said, it's an important element of our first objective to drive customers back into our stores. But it will not change significantly in the ratio as a percentage of sales for the full year.

I would rather expect marketing spending as a percentage of sales to be very comparable to the levels we had in the previous fiscal year.

Maybe just a quick follow up on the rents negotiation? Are there any particular regions which will see more renegotiation or maybe more clothing?

Well, there might be some parts of the world, we'll take, for example one of our star performers in the past, like the UK market, which might have thought they're immune to this exercise. I can tell you everybody has something which is dilutive to the store, maybe some more than others.

But we have been clear in it is affecting all three regions. Almost every market that we know takes a very rigorous approach to anything that is clearly dilutive to the margin.

It will not surprise you that a significant portion of the analysis is in the Chinese market, where we have seen significant declines in sales levels over the last two years. But we also have not easy negotiation situations in Europe and North America.

On China, you mentioned that you had a 10% volume growth. Could you maybe give us an indication in which categories that was predominantly?

Secondly, we're seeing in the industry some kind of tendency that there is some brand harmonization going on. Have you already thought about that?

Or is the Green, Black, Orange, tailored, what have you is that put in stone that this will continue to be as it is currently? And then lastly on Boss Woman, how's the situation there?

Obviously, with Jason Wu, how long is the contract still ongoing with him? And should we assume that the importance of Boss Woman will go down materially?

Or is it more an adjustment of the current situation? I know you already elaborated on it, but some additional words on that business would be appreciated.

Let's start with the volume uplift in China, which, as we indicated in the call, has been one of the bright and promising results in an otherwise quite year first quarter performance. We think that we have now found a much better execution not only to finding the right pricing, if there's ever something like a right relative pricing at all.

But also, especially in terms of execution, using social media in a far more advanced and sophisticated way than we did six months ago. Using the brand ambassador, I guess less than 10% of the analysts on this call would -- might have heard about this gentleman before, Wallace Huo.

But it clearly is an indication of local intelligence to be tapped into to find the right execution to make this price adjustment known to our end consumer especially those who we might have lost over the last years, because they have established different purchase habits. So, yes, it's rather the execution on the price adjustment which has played a role than, specific product categories or brand lines.

It is driven by our menswear business. We are still predominantly sportswear driven in the Chinese market, but we continue to see positive development also on our tailored products.

Especially, Mr. Wallace Huo was also an important brand ambassador when it comes to tailored products.

So if you Google his image now, parallel to the call, you will see that he is not dressed in shorts and t-shirts but he is dressed very nicely in a cool Hugo Boss suit which is also investing into our core equity in the Chinese market. In terms of rent harmonization, it's clear that this is also a story or a journey that will always continue.

We have to evaluate the effectiveness of our brand architecture, the breadth of the offer. We have done this in the past and we'll do this in the future.

I would like to highlight however, that our brand portfolio that we offer in our most important sales channel is far more harmonized and focused on the Boss core offer than ever before. So if we look at our retail operations today in particular with the successful category migration that we implemented in Europe last year, we're quite confident and pleased with the results that we have established Boss now as our core retail and mono brand in our portfolio.

Hugo, Boss Green and Orange will continue to play important roles in particular to an aspirational buyer in certain shopping environments, where we think that the brand environment is not appropriate for the Boss offering. I think I mentioned as part of the call also the efforts we are going through right now in the U.S.

market that Boss is not any more appropriate at some of these wholesale departments stores. However, as other brands which are seen as a substitute or adequate, brand mix to the Hugo brand operating at lower price points, also to a younger consumer might be well served from this location.

So I think we have very strong, sizeable, successful brands with good customer recognition. We are well advised to work with the potential that these brands offer to us.

I'm glad that you mentioned women’s wear, because this is very important that we are not reverting on our commitment to women’s wear. However, we have to acknowledge that we have overexposed ourselves, sometimes in space allocation, definitely in marketing budget allocation to women’s wear.

And we need to be right in our allocation to support our core business representing close to 90%. So we have adjusted for that.

We are happy with the first result that this is helping to support our menswear business in an overall difficult market environment. But we have no intention to slow down or to walk away from our commitment to women’s wear.

We have a multi-year contract with Jason Wu. It's a well established relationship.

We see strong feedback from buyers, but also from the fashion press. It has brought Boss and its fashion competencies to an unprecedented level, and we have no intention to change that.

Very good and a very quick one, the €50 million cost savings, just to double check if I understood that correctly, is that all going through your P&L this year already? Or is that something that builds up A?

And B how much was already in the initial budget for this year?

Well, two questions to that. One is that we have given you fiscal year 2016 impact to that.

We have not disclosed the full run rate effect on this cost saving. And clearly, this is not pure play cost cuts that we have quantified a reduction versus previous year cost levels, because we have to acknowledge that, given the strong run rate from cost increases from last year, where we have built infrastructures not only on the retail side but also on overheads, the measures we have taken now would cause a significant increase in the decline in the increase, but will not reduce the overall cost base versus last year.

So the reduction is versus our initial plan that we have signed off at the end of 2015. These plans have now been very critically reviewed, not only in terms of OpEx but also CapEx.

We have quantified now the range of reduction. It is a 60 million to 40 million versus the last year investment level.

Also, the OpEx reduction is due to the fact that we have very critically reviewed spending plans for the current fiscal year. We are now able to quantify the impact in the current fiscal year.

Could I just follow up on the question that was just asked around the cost savings? Are you saying that there was an amount of cost savings already implied in your guidance and you've now just quantified it to the market?

Or is that an additional 50 million on top of any that you'd already identified when you first set guidance? So just wondering really if you've kept your EBITDA guidance unchanged what the offset is from that extra 50 million, so that would be the first question.

And then second question, just wondering if you could comment on trading in April, and whether there's been any improvement to trading in Europe or the U.S. since the first quarter ended?

And then third question, appreciate it's still early in the year, but just wondering if there's been any change to your thinking around the dividend policy and outlook, given the expected decline in profitability this year. That would be very helpful.

Well, let's start with the dividend questions first. There's going to be a quite sizable dividend payment, which is coming up now on May 19.

As we also explained to the market back at the analysts' conference, we do expect a quite sizable decline in profitability in 2016. As you have seen from today's guidance, a reiteration, we have seen no change to that.

We are proven right with a very cautious outlook based on Q1 performance. But also as we said at the analyst's conference we will frame the dividend proposal not only on net income development, but also on progress in terms of cash flow generation.

Clearly, it's just one quarter completed yet, but I am quite pleased with the progress we have not only made in reducing and focusing our investment schedule, but also making progress in trade networking capital management which, from my perspective, puts us on a pretty good path to hit on our target of improving free cash flow levels for the full year 2016. Let us deliver on these two metrics.

We need to deliver also on our earning guidance in a now clearly proven difficult market environment. We then take these actual data points and of 2016 together with our outlook on 2017 to frame our proposal for the dividend for fiscal year 2016.

I think your second question was on April trends. As you see from our unchanged guidance, we have no reason to revise our guidance for the full year, based on any current trading trends.

As we typically do during the quarter we try not to comment on current trading to the extent that this goes beyond on the completed quarter, but overall we have not seen a significant change to the trends that we have experienced not only in the first quarter of 2016, but also at the end of 2015. On the cost savings, we have given to the market our clear commitment, back in February, to be quite rigorous in our cost review.

We have done our homework, as I just explained to Juergen. We have now not only identified but also quantified and timed the effect of these measures.

We are giving you this number now for 2016, it's a 50 million cost reduction versus the initial plan. This is now the number we feel comfortable with.

At the analyst's conference and the initial guidance we expected already some savings, but this is now the more quantitative assessment of these.

So that 50 million is on top of anything that you'd already identified when you first set guidance.

Yes.

So I'm just trying to work out what the offset is, because you've kept your EBITDA guidance unchanged, and appreciate perhaps fairly weaker Q1, but is it that some of those cost savings you'll be reinvesting back into the business? Or what's the offset so that you haven't changed guidance?

Well, I think to run through this metric I would also ask you to touch base with Dennis, but we have given you a quite wide range on our EBITDA decline. Please keep in mind that you might have a different interpretation of low double-digits than we had initially.

That could be part of this discrepancy on having now quantified the additional 50 million added to your initial assessment on our full year EBITDA guidance.

First one just on gross margin, you had 140 basis point decline in the quarter. Could you talk a little bit more about the basis point split around mark down, rebates, pricing variations?

Clearly there was a significant price drop in China, but prices might have increased a little bit in Europe, and with regards to raw materials. So I just wanted to get a greater understanding of those moving parts around the gross margin, please.

The second question around Europe and you mentioned that 85% of your European consumption is effectively domestic. Can you talk around how sluggish the local consumption was effectively in Europe relative to travel and tourism related spend and maybe give us an idea of trends on a demographic basis?

And I guess, thirdly with regards to the North American market. You're still pursuing a strategy which is, I guess quite department store centric when it comes to either taking over previous wholesale areas, conversions into shop in shops, et cetera.

Why so much of a focus on the department stores when ultimately, traffic is in structural decline? And can you give us what you expect U.S.

wholesale would be as a percentage of America's sales by the end of 2017? Thanks.

Thanks, John. On the gross margin, I think you touched on all factors that affected our gross margin development.

In a regular quarter we would have just one explanatory factors on gross margin, this is the impact on channel mix which, in most cases also in the first quarter of 2016 is accretive to gross margin, as we have seen a small growth in retail whereas it's a high single-digit decline in wholesale. You can factor in and calculate quite easily from the outside what is the positive impact that we also had in the first quarter of 2016 from the channel mix.

What has been demoting, or decreasing, the overall gross margin for the first quarter were two factors, which were less than 10 million, but they were sizable enough to be mentioned. There was the impact from rebates that we had in particular in the U.S.

market, and I will come back to the U.S. market in the third question you asked us.

So it's partly driven by margin agreement that we had to honor on the wholesale side of our business, but also continuous pressure that we also experienced on the retail side of our business, which increased rebates in particular in the U.S. market versus last year.

And last but not least, and these were the two negative factor which dragged on gross margin in the first quarter, was the impact on inventory write-downs which was also sizable in the Chinese market from previous take-overs. All other factors played a role, you're right that we had also a smaller impact from the price adjustment in China on the Group level.

However, the impact because it was only effective on the spring, summer deliveries which is not effective on the fourth quarter, was compared to the first three I mentioned channel mix, rebate and inventory write-downs relatively small. Also, you're right that, in particular Europe, I think that we mentioned it as well, has been negatively affected by currency fluctuation, so this is also a smaller negative impact to that.

On the European performance, we think that our overall development, in particular in the German market, which is probably the market where we are even above the average number of domestic customers according to industry data this market declined by 2% in the first quarter. So our performance in Europe, I think is more or less in most markets, maybe with Italy and UK is the positive exemption, in line with the overall apparel industry data that we received so far.

Apparel has been less positive affected by an otherwise positive consumer sentiment that has been seen in the European market. And clearly, Hugo Boss is not immune to that.

To answer your question on U.S. wholesale distribution, clearly and we have learnt these lessons already within the first two years of operation at Saks where we started to do concessions at department stores.

It is not as easy as we initially expected, and we are not able to replicate the successes we also had on the -- in the Americas, in Canada and Mexico and the U.S. market.

Part of that is certainly also due to that our execution was not without fault and we are working on improving our internal execution, but it's also due to the fact that, in particular over the last 12 months, these department store partners have lost traffic. This has triggered the question that you also asked us, is it right to have the Hugo Boss presence at all POS where we had a Hugo Boss presence one or two years ago?

In some instances, we have clearly decided to discontinue these operations. As I explained in the call, we have discontinued a significant number of POS at Macy's.

We will further consolidate our presence at Dillards and Lord and Taylors. We will discontinue the distribution of the Boss brand.

However, this is a market which still has a very sizeable and also, in terms of traffic numbers, important wholesale business system, and there is a customer, who is not as brand loyal, who has a high appreciation for choices, who will continue also in the past, be the male ultimate consumers to first visit a department store, as before he might discover or she might discover the brand if he feels most committed or bonded to. So we think it's not either/or, it had to be a smart combination to that.

What we have to make sure, and clearly, that's now a tough call in the overall difficult year 2016, we have to make sure that our exposure on the wholesale side, in particular in U.S., is not jeopardizing our retail operation. So in cases where either brand image is being tarnished or our ability to sell product at full price is put at risk by the behavior from wholesale partners, we will go into very difficult negotiations or tough negotiations, and will be adversely willing to discontinue the relationship if we think that behavior of brand treatment is not in line what we expect the brand to be treated.

There is no target percentage split between wholesale and retail for any specific year. It's a result of our successes on retail, where we clearly focus on profitable growth, especially via like-for-like.

But we are also very happy to continue a relationship with wholesale partners like we do in Europe, which treats the brand as we expect brand to be treated, where we continue to have also in the future a very mutual, beneficial relationship with these accounts.

Maybe just getting down to the number, if we think that the retail, wholesale split in America is, I don't know, it just around 50% wholesale or just under, but 44% of your wholesale is coming out of Nordstrom. That means that there are opportunities to consolidate.

You mentioned a few of them, but what should we consider the wholesale, as a percentage of sales, to be in the North American market, because you're still too overweight there? Any idea, even if it's not towards the end of 2017, maybe by FY20, just to get some idea?

For the Group, we have given you an indication that we expect by the year 2020 overall from a global scale something that's probably between 75% to 25% split between retail and wholesale. That clearly varies by region.

Asia is far ahead of this percentage split. Europe will not be at this range by 2020.

I would assume that the U.S. market in particular will be clearly north of the 50% retail we have today.

Whether it's going to be already above 60%, please understand that we don't want to lock us in into any specific target percentage rate. We want to have a healthy, sustainable wholesale business relationship.

Whether this will be achieved with just one or two accounts in the future really depends on the outcome, also changes of behavior that we currently have found unacceptable from some of our current partners. What is clearly understood by all of these partners, that if this does not change from a Hugo Boss perspective, it will terminate the relationship.

I have three questions please. The first one on the rental renegotiation, can you indicate how many stores in China or perhaps Hong Kong are concerned and what have you generally achieved?

Is it a lower variable rent, lower fixed rent, additional benefits, etcetera? And with regards to the 20 store closures in China you had announced earlier this year, are these stores where effectively you're not able to reduce the rent?

Or are these part of a more general downsizing of the footprint in China? Secondly, on the management changes, so you've named Ingo Wilts as Chief Brand Officer in replacement of Christoph Auhagen.

If I understand correctly, he's worked at Hugo Boss already twice before, so can you tell us what he will bring to the table this time? And how do you anticipate him to interact with Jason Wu and influence, perhaps, the women's wear strategy?

And thirdly, today you've given us a lot of the moving parts supporting your low double-digit earnings decline guidance for 2016 with flat LFL, with flat gross margin, 50 million of additional cost savings. So when you take all these into account, I know it's early in the year, but can you perhaps indicate whether you're comfortable with where consensus sits at the moment, which if I'm not mistaken, is a 15% one five, decline in adjusted EBITDA?

Thank you.

Yes, let me start with the first question. I think there are two parts to that.

One is the 20 store closures that we already announced in China where I would almost call them the low hanging fruits, because some of them were stores where former franchise stores have now come to the end of the rental contract and we have assessed the situation and have come to the conclusion that we have better alternative operations now in these city areas, that we're not dependent on a continuous operation in these malls. You have seen this also in terms of nonrecurring charges that we booked in the first quarter, that what we have already executed in terms of the Chinese closures were not material in its impact in terms of top-line profitability in nonrecurring.

That's not true for the ones we are right now reviewing and some of we are in negotiation basically with every landlord, because the land environment right now in the Chinese environment is not easy. As you probably are familiar with, it's not 120 landlords we are dealing with that are groups, where we have a portfolio of stores that we operate with some of them on a very decent or good performance and others that we would like to close.

So that adds additional complexity to it like every other branded competitor into this market. However, the relative performance of Hugo Boss that we have seen not only in the first quarter we discussed earlier, in the question I think from Antoine, the drivers for the positive impact from volume improvement is giving us quite a good position to negotiate relative to other proud players.

Hugo Boss is now enjoying probably one of the strongest volume trends in the market. We have clearly improved brand images by all the activities that we have.

So we have received quite open reception in terms of adjustment to our rental cost. This has found and will find some creative solution, maybe it's not a just lowering of the percentage rent, it could be a removal of the minimum, but it could be also something that's just called differently but effectively it's also rent reduction and a marketing contribution that's being given over extended period of time.

So we have multiple ways to achieve this target. But what we have also made clear to all of our landlords we are willing to walk the ultimate mile.

In these cases, where we are not happy with the outcome, we have not locked us in by maintaining a certain store presence or size of the business. If we come to the conclusion that this store, with this cost base is continuously dilutive through our regional operation in China, and the same is true to any other part of the world where we have looked into our most dilutive stores, we are willing to close these stores and we'll be more precise on the exact amount latest by our half year results discussion.

I think I've given you all the information that we have prior to Ingo's start, why we are very happy to have him join Hugo Boss. You're right, he had a very long and successful leadership leading the creative Boss brand, especially from the menswear part for many, many years.

During this period especially until 2009, we have seen a continuous very positive success to that. He has worked on multiple other brands, male, female, this side of the Atlantic, the other side.

So he has built a very strong also outside expertise at some of the leading companies in this industry. So we think it's not only somebody who knows Hugo Boss very well, has a very deep understanding to what the brand stands for, but he will also bring what I think is very important: a good industry knowledge, also best practice that he has picked up at other companies, where I'm really looking forward to his now renewed and fresh perspective what we can do to strengthen all of our brand lineup.

His focus will be on Boss, it's our core brand. He has built a strong relation expertise also in the women’s wear.

We are quite confident that, especially in the combination between Ingo and Jason, we will also bring our Boss women’s wear business to a new height. On the EBITDA guidance, you're right we have a significant part of moving parts in the equation, that's probably one of the most difficult years to forecast also for myself in six years.

And you know that last year my track record wasn't the greatest to be not only precise but also right, in my guidance. So I please ask for your understanding that this is the year which makes earnings projections quite difficult.

And we continue to feel very comfortable with our low double-digit guidance at this point of the year. There will be, certainly in the later part of this year, the opportunity for us to be more precise in our guidance and also to refer back to the consensus.

Consensus, as you know has changed quite significantly over the last couple of weeks. So we would prefer to rather reference to our guidance than to any external reference at this point in time.

A couple of questions, to better understand how Hugo Boss is doing against the broader market backdrop. Well, first of all what is your assessment?

How much of the problem is coming from a weaker market and how much of the problem is coming from the Hugo Boss brand execution? But more precisely, how do you see your market share evolution in the most recent quarters?

And what is the breakdown of like-for-like growth? Do you have stronger like-for-like growth in the full price or in the off-price retail activities that you maintain?

I would also --no, just a follow-up on this. Whether you see now the challenges at hand more about the fine tuning, the execution of the strategy you have?

Or whether there's space to change parts of the strategy that you had detailed in the most recent Capital Market Day at the end of last year? Thank you very much.

Okay, let's start with the first two questions then I will come to the strategic question at the end. There's limited market data available, especially now on the first quarter.

I mentioned some industry data for the German market which, according to this source, was down about at the same percentage rate as this has declined in Germany. So my assessment for Europe would be that Hugo Boss is performing more or less in line with the overall market, maybe with a weaker performance in the online.

So clearly, a growth of just 2% is, from my perspective, disappointing, but I think it's in the light of resources being in particular focused on a faultless execution of this in sourcing. So during this phase, we have clearly put more resources in ensuring this transition than bringing more in additional features to our online side and integrating our online business further into our physical network.

We also have now continued to open up new markets where the online business is not available. So it was purely driven by like for like performance.

Nevertheless, I would say within Europe, we now have to accelerate this further later in the year, as I explained, thus bringing more services to it. So Europe, overall, relatively in line with the overall market segment with a slight weakness in the online business.

In Asia, I think and this was also the earlier question from John and Thomas. I think we did a pretty good execution on the price adjustment in Asia in general, and particularly in China.

So a volume growth of 10% and a further acceleration as we go into the second quarter gives us confidence that we are, in this part of the world, continuing to take market share from our competition. This has always been our stated objective that in this part of the world, where Hugo Boss enjoys relative to its menswear peers, the lowest market share, we see significant opportunity now that we have bought back these operations from a franchise partner.

We will, overtime, build a similar market share position like we enjoy in Europe and North America, which brings me to the third region. Smaller parts of the Americas, Mexico, Canada, I'm very pleased with the execution, very solid result.

However, it's overshadowed by a very disappointing performance in the U.S. market.

Here, there is no easy solution. It's not a price adjustment or a neglected sales channel.

There is no easy fix. It's something that will lead to a reset of our wholesale business like we have started to do, and it will, in some areas painful discontinuing business relationship that we might in some cases, might have or should have discontinued already 12 or 24 months ago.

In the current market environment, we are clearly committed to go for the changes, but this is at the expenses of our relative market share relative to our peers. But I would argue that what we are losing now was anyway not sustainable and healthy for the brand equity going forward.

You asked just about like for like development by channels. The most varied system performance are rather by regions than by channels.

So the minor sector report we reported globally didn't vary much between our physical distribution channel be it shop in shop, be it freestanding or our factory outlets. The only one which was slightly better was our online business.

Even so, here we've also seen a significant decline. Your question on strategy it's had multiple success.

I think we want to make be very clear that elements that we also highlighted at our Capital Markets Day in Paris and what we did last time here in Metzingen where we focused on, especially the opportunity in the digital part of our business, continues and remains a key focus area of our business. So also, in this difficult quarter where we have reduced investments and also OpEx growth in almost every part of our business system, we have not done this when it comes to further building digital competences within the group.

So you can clearly see this as one part of our strategy going forward where we have seen no change to our strategy. However, in other parts of our strategy that we presented, you will have noticed that we are fine tuning or adjusting our strategic execution.

When it comes to women's wear, we already mentioned to you and explained to you back in February, we need to be intelligent and smart to the degree of the resources allocated to men's, women's wear relative to men's wear to ensure that both parts of our business are growing in a healthy path. Same is true for further expansion, be it growth into emerging markets or further retail growth via takeovers and by space expansion.

Also, here we clearly have moderated our plans going forward. But from my perspective it's not a change but clearly a new execution, a different quality of execution to a strategic element that continues to be part of our strategy going forward.

Then you said indeed that you would be open to considering changing your product architecture if that was appropriate.

That's correct.

Two questions, please. Just coming back, again, to the 50 million of costs that you've talked about, I appreciate you've said quite a lot already but there's quite a distinction between cost cutting and cancelling of projects.

Could you quantify the two buckets, please? And secondly, you've also said quite a lot about the different brand colors, but actually, Hugo and Green were extremely strong in the quarter.

Presume some of that is just the natural change in the wholesale business, but I was just wondering if there was anything else that was going on in those relatively small categories? Thanks.

Yes, you're completely right. Both brands, Hugo and Green, have benefited in the first quarter predominantly in Europe, but we also highlighted that we expect now, with the category migration in the U.S.

that both brands will benefit from the substitution. We call it category migration in certain brands environments and certain price point where we have discontinued to offer the Boss core offer, and have either discontinued the relationship altogether, or have given these department store partners now the opportunity to substitute these products via our Boss Green and Hugo offer.

So it's rather a shift between Boss and, Boss Green and Hugo, rather than self sustained growth pattern. Nevertheless, if you take a multi-year view to that, Boss Green has benefited clearly from the strong character in functional sportswear.

So we have seen beyond the category migration a strong demand by our active golfing and other activities inspired collection. So it is also a multi-year strong momentum that we are enjoying with Boss Green.

On the cost savings, this is admittedly more difficult from the outside brand than from the inside. From the inside it was clear that we have worked with all markets, with all functional cost centers, on a point of departure with what's their budget for the year 2016.

Of course, these initial budget plans were already in the context of a more cautious outlook for the year 2016. However, in the light of the business trends we have seen at the end of the fourth quarter and the beginning of the year 2016, we have tightened significantly the budgets allocated.

It was not a cut across all functions. It was rather a call for priorities that we have reviewed.

Anything that was in terms of projects, be it expansion, be it additional functionalities on the initial plan for 2016, and have, to the extent that these investments or OpEx were not committed yet, have reduced them and especially refocused them on this part of our business on which we believe are needed in a difficult year 2016. Coming back to Luca's question earlier on commitment to online growth in Europe, this is clearly one of the investment areas where we are not reducing our focus.

But the other element, I would try to avoid the term nice to have, but with a more longer term benefit to it, which we have postponed or reduced in size in the light of the current environment. So we have to make sure that the run rate, which from our perspective, is not yet in line with our underlying business growth.

But we have to be sure that the OpEx reduction, which is currently especially in the first months of 2016 is still suffering from the significant buildup of resources that we did in 2015. So even so, the addition has now basically come to a stop.

We are still feeling the impact from cost increases that we had from last year, but further increases have been significantly capped with the amount I just mentioned during the call.

My first question is on the timing of your two big initiatives, the price decrease in Asia and the US wholesale resetting. I'm a little bit confused by the timing because on the gross margin you're saying the impact was actually pretty small, of the China price decrease, but on the sales it seems to have been most of the impact.

So can you clarify what the impact was on sales in Mainland China, please? On the minus 11%, what was the actual price decrease impact?

And when you refer to a 10% volume increase, does that actually refer more to the spring/summer collection, when you did the minus 20% you had the plus 10% volume increase? Same question goes with U.S.

wholesale. You are mentioning -- I thought I understood on the presentation that the impact of basically, resetting the U.S.

wholesale was not really a big impact in Q1 yet. So I suspect this means the rest of the quarters will be more impacted and you will compensate with other regions doing better?

Is that right or did I misunderstand and you had the full impact in Q1 already? Could you help us understand what the growth rate or decline was for the Mainland Chinese consumer base in total, since you've had an element of transfer out of Europe back into Mainland China?

I'm sure this is going to be a tough one but it would be very helpful for us to understand what are the losses of the stores that you are currently looking at and reviewing? Thank you.

Yes. Let's start with the first one and you're right.

The 10% volume uplift that we gave you as an indication of the impact from the price reduction is the total number. So it's including also the sales period that we still had in January and February on the fall/winter merchandise, taken together with the impact from the spring/summer deliveries.

For the fall/winter merchandise we did basically the same execution, like we did last year. Please keep in mind that we have a smaller price reduction still carrying over from the price adjustment we did in, with the delivery for winter, which was relatively small, and which had only a marginal impact on our second half 2015 performance.

What we have noticed, however in the weeks starting basically end of February into March, that with the spring, summer merchandise consumers recognized the far more attractive offering by Hugo Boss on its new full price offering, which helped us to bring customers to stores. So we have seen an improvement in traffic numbers, but we have also seen a significant uplift in units per transaction, which helped us to drive the 10% volume growth.

So you're right, we didn't disclose this number. It will be more visible when we talk about volume uplift in the second quarter, because the second quarter will be the first clean quarter where we have the full quarter of a quarter where only price adjusted merchandise will be sold in our full price channels to the end consumer.

So the volume uplift on the spring, summer standalone was clearly above the 10%. However, I think we are still well advised to be a bit cautious on extrapolating the effect.

It's a bit early to tell, beyond these very few data points, we think that the executions of communication was much better orchestrated than we did in the fall. So we have learned from what fell short back in August, September in our execution the first half year and we will try to build on these winning elements, be it investment on WeChat, be it investment with brand ambassadors and other elements that we are currently collecting performance data on to have an even better or more effective execution in the second half of 2016.

A similar more difficult part comes to the U.S. wholesale impact.

It's not that we have started to cut back on off price channels in the first quarter 2016, but we have continued and accelerated this trend. We're not through with that, but we have seen an even stronger decline in the wholesale part of our business that I quantified earlier as non sustainable and not healthy for the brand.

So what we will discontinue to a large degree, but we're not through yet, is that we will not provide Boss Hugo Boss merchandise to third parties which are not related to any of our department store partners. But going forward we clearly have the intention to limit off price distribution of Boss merchandise in the U.S.

to our own factory outlets that are operated by Hugo Boss, and limited to the degree that this is feasible in the U.S. market off price distribution at third parties, be it independent operator or factory outlets operated by our department stores.

Especially the latter is a difficult journey. It's an integral important part of their business.

As we indicated, this is an ongoing negotiation with these partners. Hugo Boss is an important and respected brand for them, but we need to find a new balance which is allowing both of us to prosper in this difficult market environment.

But, first and foremost, and it's our paramount interest to protect the brand equity with the end consumers. This is clearly as many consumers and research has indicated to us, some part where the brand has been tarnished by our action over the last two years.

Sorry, you have to help me on your third part of the question. I think was the two.

Melanie, did I answer your question.

Yes, the Mainland China consumer base in total if I include the tourist how did that fair in Q1 versus Q4?

That's a very difficult question, because, I would love to be more precise on that one if I had a much higher capital rate on consumer that do purchase at Hugo Boss and which are captured in our system. As there's one part, not only in China but globally, where we need to become much better, that we do more transactions with captured consumers, but this is based on the data we have available too difficult to give you quantified answers to that for the first quarter performance.

And then on the losses of the stores, you are currently reviewing.

Well, I think that what the earlier question from Thomas. There is a certain number of our stores that we were already knew that that are going to be closed.

The other one, and these are especially larger bigger operations, where the outcome might be a reset on the operating costs, where we would continue to be operating these stores, but we prepared the market to expect also some high profile closures in the second quarter, or the announcement of closures to that. So the financial impact will be visible in the second quarter.

But here I would ask for your understanding, Melanie that we need to complete this integration first, before we can pin point specific ones. It's not going to be the full set of reviewed stores of up to 20, the biggest dilutive stores.

But I do expect a sizeable number of our stores where we'll have an exit plan announced probably by the mid of this year.

And then adding a follow up story on online, could you share with us, in your view, is this a quick fix. You seem to believe that you are behind, but that you are fast investing to try and catch up.

In your view, two years' down the line can you what percentage of sales came online before you and what do you base that on? Thank you.

It will be higher definitely. As I explained, we had a temporary discontinuation of certain revenue driving activities doing the phase where we in sourced the EMEA business and to my knowledge we are one of the very players in the premium to luxury field, we'll have now a full control on the full value chain to the end consumers.

So everything is operated by our IT system and the logistic of platform operated by us completing integrated also in the platform, which is serving our physical retail operations. And we clearly, see this now as a point of departure to quickly move into new omni-channel services adding new markets, but in particular now to strengthen the offering by combining, or bring to the market, so called omni-channel services, which not only should help us to drive our online sales, but also allow us to give more incentive to the end consumer, to use also our physical outlets, be it via click and collect, return processes, ordering from stores and other services, which will make the consumer experience not only seamless, but also far more pleasant in its experience than we were able to do that with the previously disaggregated services.

We need to deliver on that already as of the second quarter. We need to not -- preparing for the implementation of these measures, most of them will be started to be implemented in the second half.

I think we mentioned our core market, the UK online market where we will already start some of these services over the summer. But this is part of the earlier question of the acceleration of retail growth in the later part of this year should come from an improvement especially also in the online business.

Whether this will result in a third percentage rate, it's not necessarily our primary focus. The primary focus for the Group is to have a more sizeable, better performing retail business going forward.

Thank you very much, Melanie. I think this is also the time for me to conclude today's call.

I think there were many questions and maybe not all questions have been answered during this call. So if you feel there is something you would like to follow up on with us, please feel free to Dennis and the team.

Otherwise, we are looking forward to seeing or talking to you, and meeting you during the second quarter, and we will be back to you later with our second half results beginning of August. Till then, have a good day.