Outlook

Subsequent events

Between the end of fiscal year 2018 and the release of this report for publication on February 20, 2019, there were no macroeconomic, socio-political, industry-related or Company-specific changes that the Management expects to have a significant impact on the Group’s earnings, net assets and financial position.

Outlook

The following report presents the forecasts of the Management of HUGO BOSS with respect to the Company’s future development and describes the expected development of significant macroeconomic and industry-specific conditions. It reflects management’s current knowledge at the time the report was prepared, while also taking into account the fact that, if the risks and opportunities materialize as described in the Report on Risks and Opportunities, actual developments may differ significantly from these forecasts, either positively or negatively. Other than the statutory publication requirements, HUGO BOSS does not assume any obligation to update the statements contained in this report. Report on Risks and Opportunities

Economic and industry-specific developments have a major influence on the development of the Company’s operations and financial development. The Group's forecasts regarding the Company’s expected development are therefore based on certain assumptions about developments in the global economy and in the industry. These assumptions are outlined in the following sections. The Group continuously monitors the development of these conditions over the course of the year so that it can respond to possible changes as quickly and comprehensively as possible. Group Management

Outlook for the Global Economy

The IMF expects further weakening of the growth rate in the global economy to 3.5% in 2019 (2018: 3.7%). As reasons, the IMF cites the ongoing uncertainties related to the American-Chinese trade conflict, the punitive tariffs imposed in connection with this, the low growth prospects in many countries in the Eurozone, and the deteriorated sentiment in international financial markets. For industrialized countries as well as emerging markets, the IMF is expecting slightly lower growth rates for 2019 overall compared to the prior year. However, country-specific growth rates should differ considerably from one another. Further escalation of global trade conflicts, a possible “no-deal” Brexit and a steeper-than-expected decline in economic growth in China are seen as significant risks to the global economic trend in 2019.

According to IMF estimates, growth in the Eurozone is expected to be 1.6% in 2019, representing a further slowdown compared to the prior year (2018: 1.8%). This development will be driven by Germany's lower growth prospects due to weaker private consumption and lower industrial production, as well as the further weakening of the Italian economy where the debt conflict with the European Union is putting a strain on domestic demand. The IMF's growth forecast of 1.5% for the British economy is fraught with uncertainties and is based on the assumption that there will be an orderly Brexit and that the announced fiscal policy measures will be implemented (2018: 1.4%). Economic growth in the United States is expected to decrease to 2.5% (2018: 2.9%). The fading positive impact of the tax reform and the gradual rise of interest rates are expected to contribute to this decline. For Latin America, by contrast, the IMF anticipates further economic recovery. The dynamic economic growth in China is expected to weaken further, according to the IWF. It is expected that, despite stimulant measures by the Chinese government, the trade conflict with the U.S. as well as necessary regulatory reforms will limit the growth potential of the Chinese economy in 2019 to 6.2% (2018: 6.6%). The Japanese economy is predicted to grow slightly again this year, stimulated by monetary and fiscal policy measures.

Industry Outlook

In a joint study, The Business of Fashion and the consulting firm McKinsey & Company anticipate that the global apparel industry will see growth of 3.5% to 4.5% in 2019, thus slightly weaker than in 2018 (2018: 4% to 5%). A growth rate of 3.5% to 4.5% is likewise anticipated for the upper premium segment of the apparel industry, which is the best standard of comparison for the industry relevant to HUGO BOSS, so that similarly robust growth as in the prior year is expected (2018: 3.5% to 4.5%). These estimates are based on the expectation of continuing high demand in the Asian emerging markets, while industry growth in Europe and North America will likely see a slight decline in 2019. Overall, apparel sales are expected to grow more slowly again in the coming year compared to sales of shoes and accessories. General Economic Situation and Industry Development

In the Casual and Athleisurewear segment of the global apparel market, which has already grown significantly in the past few years, The Business of Fashion and McKinsey & Company expect above-average growth again in 2019. Strong demand particularly among younger consumers is expected to contribute to this development. However, it is assumed that the trend towards a more sporty, casual apparel style has already peaked in certain developed markets. Generally speaking, the industry outlook is characterized by considerable differences between individual companies.

In Europe, the industry is expected to grow more slowly in 2019 than in the prior year. Industry growth is expected to be at a low to mid-single-digit percentage rate. It is assumed that particularly the generally expected cooling-off of the overall economy will have a negative impact on consumer demand. Solid sales among tourists, however, should again contribute significantly to industry growth in 2019. After strong growth following the recent depreciation of the British pound, industry growth in Great Britain is nonetheless expected to be somewhat lower than in prior years. In addition, industry risks will emerge from the planned exit of Great Britain from the European Union. It is also anticipated that industry sales in Germany will once again grow at a below-average rate in 2019. Risk Report, Material External Risks

In the Americas too, industry growth is expected to weaken slightly in 2019 following the strong growth of the prior year. Although it is predicted that consumer confidence in the United States will remain strong, industry experts continue to see uncertainties regarding the possible impact of trade conflicts and, moreover, the continued discount and consolidation pressure on the part of market participants. Overall, industry sales in the region in 2019 are expected to rise at a low to mid-single-digit percentage rate.

In Asia, according to the estimates of The Business of Fashion and McKinsey & Company, industry growth in 2019 is expected to continue at a mid-single-digit percentage rate overall, similar to the prior year, due to contiuous high demand in China and other emerging markets in the region. Growth will again be driven by younger and increasingly fashion-conscious consumer groups, that are strongly influenced by social media. In addition, further anticipated growth of the middle class in the emerging markets is expected to contribute to the development. In Hong Kong and Macau, industry sales in the coming year should see weaker growth than in Mainland China. For the developed markets in the region, like Japan or South Korea, only relatively low industry growth is to be expected again in 2019. Meanwhile, there is a significant industry risk of a stronger than expected cooling-off of the Chinese economy. Risk Report, Material External Risks

Outlook for the HUGO BOSS Group

HUGO BOSS has decided not to take into account the impact of IFRS 16 in its outlook for fiscal year 2019. This should allow for better comparability of the results of fiscal year 2018 with the outlook for fiscal year 2019. The Group assumes, according to current knowledge, that the first-time application of IFRS 16 in fiscal year 2019 will cause an increase in operating profit (EBIT) by an amount in the low double-digit millions of euros. At the same time, the Group's net income is expected to be reduced by an amount in the single-digit millions of euros. For free cash flow, an increase in the low triple-digit millions of euros is expected based on the first-time adoption of IFRS 16. A full description of the expected impact of IFRS 16 can be found in the Notes to the Consolidated Financial Statements. Notes to the Consolidated Financial Statements, Accounting Principles

In the context of the general economic and industry-related conditions, HUGO BOSS expects Group sales in 2019 to increase at a mid-single-digit percentage rate on a currency-adjusted basis. Consequently, the Company’s growth is expected to be stronger than that of the global economy and the relevant market segment.

In 2019, all regions are expected to contribute towards sales growth. The Group assumes that sales in Europe will increase by a percentage rate in the low to mid-single-digits adjusted for currency effects. For Great Britain, meanwhile, slightly lower-than-average growth is now expected after the strong growth achieved in the past. It is also anticipated that sales in Germany will grow slightly more slowly than the region’s average, on account of the still challenging market environment. Based on the assumption of further increases in the U.S. business, currency-adjusted sales in the Americas should also increase at a low to mid-single-digit percentage rate in 2019. In Asia, currency-adjusted sales are forecast to grow by mid to high single-digit percentage rates, particularly due to significant growth in the Chinese market. It is expected that the Licenses segment will return to growth in 2019. The outlook for growth in the mid-single-digit percentage range is based in particular on the expectation of growth in the fragrance segment.

For the Group's own retail business, sales in 2019 are expected to grow at a mid to high single-digit percentage rate on a currency-adjusted basis. The forecast is based on the assumption that comp store sales will grow at a mid-single-digit percentage rate. The online business will contribute disproportionately to the growth of the Group's own retail business again in 2019. In addition to sales increases made through hugoboss.com, it is expected that the intensification of partnerships with multibrand platforms under the concession model will make a noticeable contribution to growth in the online segment. Group Strategy, Further Refinement of the Distribution Strategy

The size of self-managed HUGO BOSS retail space is forecasted to remain broadly unchanged in 2019. The Group will use expiring lease agreements to reduce the size of, relocate, or, if necessary, close its own retail stores that are not meeting productivity and profitability requirements. Along with an optimization of the store portfolio, accelerated renovation of existing BOSS stores, expansion of omnichannel services and continuous improvement in product ranges and services are expected to provide for an increase in retail sales productivity. New BOSS Store openings will relate to the Asia/Pacific region in particular. The Group also plans selective openings of further HUGO stores in selected metropolises. The number of the Group's own retail stores is therefore expected to increase slightly in 2019.

The Group sees potential for growth with strategic partners in the wholesale business again in 2019, by aligning its product range more closely to the needs of its partners, taking steps to upgrade its brand presentation at the point of sale, and expanding online cooperations. However, the Group anticipates that in 2019 wholesale sales overall will be slightly below the prior year’s level. This development mainly reflects the ongoing challenging industry environment in many European markets, the discount and consolidation pressure from market participants forecast particularly in the United States, and the intensification of partnerships as part of the concession model in the online segment attributable to the Group's own retail business. Group Strategy, Further Refinement of the Distribution Strategy

HUGO BOSS aims to increase the Group's gross profit margin in 2019 by up to 50 basis points compared to the prior year. Above all, the growing share of sales from the Group's own retail business should have a positive impact on the gross profit margin. The gross profit margin generated through this distribution channel is higher than in the wholesale channel. The improved management of discounts that the Group is aiming for in its own retail business should also have a positive impact on the gross profit margin.

For fiscal 2019, the Group expects a moderate increase in operating expenses. Continued strict cost management and the first positive effects of the efficiency program launched in November 2018 as part of the Business Plan 2022 will partly offset further investments in the digital transformation of the business model, from which HUGO BOSS hopes to derive significant sales momentum and an acceleration of operational processes. Group Strategy, Business Plan 2022

HUGO BOSS assumes it will be able to increase operating profit (EBIT) in 2019 at a high single-digit percentage rate. Above all, the predicted increase in gross profit is expected to contribute to this. The Group's net income should also increase at a high single-digit percentage rate compared to the prior year.

HUGO BOSS is committed to strictly managing trade net working capital in 2019. In view of its focus on inventory management, the Group expects to be able to keep inventories broadly stable despite the anticipated sales increases for 2019. As a result, HUGO BOSS projects a reduction of average trade net working capital as a percentage of sales by 50 to 100 basis points.

Capital expenditure is expected to increase to a level between EUR 170 million and EUR 190 million in 2019. Investment activity will focus on the Group's own retail business and its IT infrastructure. Alongside the accelerated conversion of existing BOSS stores to the new store concept, in 2019 the Group is also investing in relocating the outlet at the headquarters in Metzingen and opening further HUGO stores in selected metropolises. In addition, HUGO BOSS will further strengthen its IT infrastructure with a view to improvements, above all, in the areas of e-commerce, digital brand communication and customer relationship management. Investments will be financed by operating cash flows in 2019 as well.

In 2019, the Group expects free cash flow of between EUR 210 million and EUR 260 million. The targeted increase compared to the prior year particularly reflects the higher operating profit as well as the projection of a significantly reduced cash outflow from changes in trade net working capital. The Group expects financial leverage at the end of the year to be more or less at the prior year’s level. Due to its strong internal financing capability and the favorable terms of its syndicated loan, which has been extended until 2022, the Group does not plan any significant financing activities in 2019. Financial Position

HUGO BOSS pursues a profit-based dividend policy that allows the shareholders to participate appropriately in the Group’s earnings development. Between 60% and 80% of net income is to be distributed to shareholders on a regular basis. The Managing Board and the Supervisory Board intend to propose to the Annual Shareholders’ Meeting on May 16, 2019, a dividend of EUR 2.70 per share for the fiscal year 2018 (2017: EUR 2.65). The proposal is equivalent to a payout ratio of 79% of the Group’s net income attributable to the equity holders of the parent company in 2018 (2017: 79%). The proposed dividend takes into account the positive development of the Group's net income in particular. Assuming that the shareholders approve the proposal, the dividend will be paid out on May 21, 2019. Based on the number of shares outstanding at year-end, the amount distributed will come to EUR 186 million (2017: EUR 183 million).

Adverse macroeconomic and industry-specific market developments in key sales markets, cost inflation in sourcing processes and unexpected fluctuations in demand in the Group’s own retail business could have a negative financial impact, causing the actual development of the annual financial results to differ from this outlook. The Group has contingency plans in place to limit the likelihood and impact of these and other risks. Details are presented in the Risk Report. Conversely, capturing opportunities presented in the opportunity report may lead to positive deviations from the forecast. Report on Risks and Opportunities

In November 2018, HUGO BOSS presented its mid-term targets by 2022 as part of an Investor Day. An overview of the Business Plan 2022 can be found in the section Group Strategy. Group Strategy, Business Plan 2022