Earnings development

Slight increase in gross profit margin

At 66.2%, the gross profit margin was 20 basis points above the prior-year level in fiscal year 2017. Positive effects stemming from the rising share of sales in the Group's own retail business, where HUGO BOSS generates a higher gross profit margin than in the wholesale channel, were partially offset by negative translation effects in connection with the appreciation of the euro.

Increase in marketing expenses arising from the repositioning of BOSS and HUGO

Selling and distribution expenses in fiscal year 2017 were up slightly year on year. Relative to sales, they increased slightly from 43.6% to 43.7%. However, a slowdown in retail expansion and positive effects from renegotiated leases in the Group’s own retail business in the prior year limited the increase in selling expenses to 1%. At 34.0%, they accounted for a lower percentage of sales than in the prior year (2016: 34.2%). In connection with the repositioning of the BOSS and HUGO brands, marketing expenses rose by 3% in comparison to the prior year and, at 6.8%, were slightly above the figure for the prior year in relation to sales (2016: 6.7%). Logistics expenses rose by 10% over the prior year and, at 3.0% of sales, were up on the prior year (2016: 2.8%). The main reasons for this were higher expenses in relation to the expansion and connection of the warehouse site in the United States to the Group-wide ERP system together with the favorable development of the online business, which resulted in higher personnel and other expenses. Notes to the Consolidated Financial Statements, Note 2

Strict cost management limits increase in administration expenses

The unchanged strict cost management limited the increase in administration expenses during the past fiscal year. The 5% increase in general administration expenses can be attributed mainly to higher depreciation and amortization in connection with IT infrastructure investments and higher personnel expenses in this area. At 8.0%, they accounted for the same percentage of sales as in the comparable prior year period (2016: 7.7%). Research and development costs incurred during the collection development decreased by 2% compared to the prior year period and accounted for 2.3% of sales, slightly less than in the prior year (2016: 2.4%). Notes to the Consolidated Financial Statements, Note 3

Other operating income has a positive effect on profit

The net income arising from other operating expenses and income was EUR 8 million (2016: net expenses of EUR 67 million). This includes an income of EUR 15 million related to a provision recognized in the prior year in connection with the store closures that were agreed upon, which was not used in full. The company was able to achieve more favorable conditions compared with the original plans for the early termination of leases. In addition, the lease terms for some stores were improved in the closure negotiations with the result that these stores were kept open contrary to original plans. The expenses recognized in this connection came to EUR 48 million in fiscal year 2016. In fiscal year 2017 there were other operating expenses of EUR 7 million arising as a result of organizational changes in the regions (2016: EUR 8 million). Notes to the Consolidated Financial Statements, Note 4

EBITDA before special items stable

EBITDA before special items showed a stable development in the fiscal year. The increase in gross profit was balanced by higher operating expenses. Currency effects had a negative impact. However, EBIT and EBITDA saw a double-digit percentage increase. At 18.0%, the adjusted EBITDA margin was down 30 basis points on the prior year (2016: 18.3%). Amortization and depreciation came to EUR 159 million, down 6% on the prior-year due to lower capital expenditure and decreased impairments recognized on property, plant and equipment in the Group’s own retail business (2016: EUR 169 million).

Negative development of exchange rates weighs on financial result

The Financial result, measured as net expense after aggregating the interest result and other financial items, increased in fiscal year 2017 mainly due to a negative development of exchange rates. Notes to the Consolidated Financial Statements, Note 5

Higher Group tax rate in 2017

In fiscal year 2017 the Group tax rate increased to 30% (2016: 24%). The reason for this was a one-off, non-cash tax expense in connection with the tax reform adopted in the United States. This resulted from the revaluation of deferred tax assets. Additionally, changes in German tax legislation contributed to the increase. Nonetheless, the Group’s net income increased by a double-digit percentage in fiscal 2017. Notes to the Consolidated Financial Statements, Note 6