Letter to Shareholders
HUGO BOSS looks back on a successful 2018. We increased our pace of growth as planned and achieved our annual targets. Overall, sales grew by four percent on a currency-adjusted basis to EUR 2.8 billion. Even more encouraging, this growth was broad-based. Above all, our own retail business, and here in particular our online business, enjoyed dynamic growth. The latter increased at a strong double-digit rate in 2018. Our wholesale business also recorded sales growth in the past year. This positive sales development does not only show that both our new menswear and womenswear collections are very well received by customers, it also means that the consistent execution of our strategic priorities is paying off.
“We accelerated our pace of growth and achieved our targets for 2018.”
Sales growth accelerated noticeably in 2018 in all regions. In our home market Europe, by far the largest region, we enjoyed robust growth, driven by our consistent strength in the British market. In the Americas, our retail and wholesale businesses likewise contributed to growth. In Asia/Pacific, we continued the positive trend and once again achieved overproportional growth. In particular, the Chinese market continued to enjoy strong momentum, recording double-digit growth on a comp store and currency-adjusted basis.
Besides sales, operating income (EBITDA before special items) also turned out as we forecast at the beginning of 2018. At EUR 489 million, it remained roughly on the prior year’s level. A series of investments to ensure sustainable, profitable growth were the reason why we have not yet converted sales growth into higher profits. These included especially investments in the quality of our products and in the digital transformation of our business model. The latter also contributed to the fact that we recorded significant growth in our own online business and, for the first time, achieved sales above EUR 100 million. This shows us that we successfully implemented improvements of the hugoboss.com website and that customers are responding very well to our online presence with its consistent alignment toward BOSS and HUGO.
“We achieved significant progress in implementing our strategic priorities.”
I am particularly pleased that we also made significant progress in implementing our strategic priorities in 2018. We are very proud of the successful realignment of our BOSS and HUGO brands. Our customers were able to experience this for the first time in stores last year, with the launch of the Spring/Summer 2018 collections. Clearly, the BOSS and HUGO fashion shows were also among my personal highlights. In September, we presented BOSS Menswear and BOSS Womenswear together again for the first time as part of New York Fashion Week. With the theme “California Breeze,” the new Spring/Summer 2019 collections created excitement – and found very positive resonance – with modern looks that convey the relaxed feeling of the California coast with a combination of pastel tones and bold color accents. HUGO had already presented its Spring/Summer 2019 collections in July as part of Berlin Fashion Week. With striking neon colors, light fabrics and contrast details, HUGO reflects the modern street style of Berlin's “mixmasters” and club scene.
We also made significant progress in further developing our distribution strategy. That was true especially for our online business. Last fall, we intensified our partnership with the well-known online retailer Zalando. While we added BOSS Businesswear to the product line available through Zalando, importantly, from now on we will be offering this collection via the partner program platform by ourselves. I am convinced that we will be able to serve the needs of our customers better in the future with this sort of cooperation. Consequently, we have set ourselves the goal of entering into further cooperations in the online segment in the coming years, with a strong focus on the Asia/Pacific and Europe regions.
In 2018, we also successfully advanced our most important distribution channel, brick-and-mortar retail. We further optimized our store portfolio and modernized our stores. Already today, our customers can experience our menswear and womenswear collections in a new environment in many BOSS stores worldwide. With modern architectural features and a large number of digital services, the next-generation store concept guarantees customers a unique shopping experience. HUGO has also been presenting itself with a brilliant new look in many major cities since last year. The first HUGO stores with their unique store concept opened last year in London, Paris and Dubai, among other places. Our fashion-conscious, progressive HUGO customers are impressed by our unconventional store designs and tight integration with social media.
We have made very good progress in the digitization of our business model. We increasingly develop and distribute our collections using digital tools. This enables us to respond faster to market trends and keep our finger on the pulse of the times with our products. Product development for parts of the HUGO collection is already fully digitized today. For distribution to wholesalers, we rely more and more on the use of digital showrooms. And in our stores, we provide customers with a high-quality shopping experience thanks to a large number of digital services across all our distribution channels.
“We want to be the most desirable premium fashion and lifestyle brand globally.”
We have set ourselves the goal of being the most desirable premium fashion and lifestyle brand globally. Our Business Plan 2022, which we presented in November 2018, is entirely focused on this goal. The focus is on two strategic priorities - personalization and speed. We will personalize our offerings even more in the future, while at the same time speeding up central processes. Equally, we will make sure to achieve sustainable profitable growth in the years to come. Specifically, we want to increase sales by five to seven percent on average in the next four years on a currency-adjusted basis, thereby growing faster than our relevant market segment. Four factors will be decisive for us: significant growth in our own online business, an improvement in retail sales productivity, fully exploiting the growth potential in Asia, and above-average growth of HUGO in the contemporary fashion segment.
In addition, we want to boost the operating margin (EBIT margin) to 15 percent by 2022. To make sure we succeed, we will not only increase our operating efficiency in coming years, but also elevate the desirability of our brands. Our ultimate goal is to achieve a significant increase in value in the coming years for you, dear shareholders. To ensure that you will benefit from our Company's long-term success, we will continue to focus strongly on a sustainable dividend policy in coming years. We intend to continue distributing between 60 and 80 percent of the Group’s net income as dividends to our shareholders annually.
“The current year will be all about the execution of our Business Plan 2022.”
The current year will already be all about the execution of our Business Plan 2022. For this year, we expect to increase currency-adjusted Group sales at a mid-single-digit percentage rate. At the same time, operating income (EBIT) should grow at a high single-digit rate, thus significantly stronger than sales. In doing so, we will set an important milestone in the implementation of our Business Plan 2022 and achievement of our mid-term targets.
In conclusion, dear shareholders, HUGO BOSS is optimally set up for long-term success. We have two strong and globally recognized brands in BOSS and HUGO, a one-of-a-kind global distribution network, and top-notch employees who are passionate and devoted to inspiring our customers anew every day. My particular thanks and recognition goes to our employees for all their efforts over the past year. They are the heart of HUGO BOSS and a foundation for lasting success. Together we have established the conditions to meet our targets for 2019 and beyond.
Chief Executive Officer