Increase in Group sales expected to be in the low to mid single digits

As a consequence, the Group expects to increase sales in fiscal year 2018 by a rate in the low to mid single-digits, adjusted for currency effects. This means that business growth is expected to be similar to that of the global economy and the development of the industry overall.

All regions to contribute towards sales growth in 2018

In 2018, 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. Sales development in Great Britain and southern Europe should be slightly better on a currency-adjusted basis when compared to the region as a whole. Growth in Great Britain, however, is expected to be lower than in the prior year. In 2017, the market benefited from significantly higher demand from tourists as a result of the devaluation of the pound sterling. Bolstered by an ongoing positive economic environment, also Germany and its neighboring countries are predicted to achieve sales increases. For the Americas, 2018 is predicted to see the upward trend continue. As a result, sales should increase by a low single-digit percentage rate when adjusted for currency effects. All markets in the region should make a positive contribution towards sales growth in the own retail business. Also, the wholesale business in the United States which has been declining of late is set to stabilize. In Asia, sales are forecast to grow by mid to high single-digit percentage rates, particularly due to an unchanged positive outlook in the Chinese market. Alongside solid increases on the Chinese mainland, the Group is also expecting above-average growth in Japan and the south-east Asian markets compared to the region as a whole. Sales in the license segment should grow in the mid single digit percentage range. This outlook is based in particular on the expectation that the fragrance business will record further growth.

Sales in the Group’s own retail business to grow at a mid single-digit percentage range

For the Group's own retail business, sales in 2018 are expected to grow at a mid single-digit percentage rate on a currency-adjusted basis. The forecast is based on the assumption that comp store sales will grow in the mid single-digit percentage range, too. In the online business faster sales growth is expected compared to the prior year. In addition to this, the improvements in the BOSS and HUGO collections, the broadening of the casualwear and athleisurewear offerings, the expansion of omnichannel services and the gradual introduction of new store concepts will continue to improve the customer experience and thus increase selling space productivity. Group Strategy

Size of store network likely to remain stable

The size of the Group’s own store network will not change significantly in 2018. Closures of stores with expiring leases are likely to be offset by a similar number of new store openings. In some cases, this reflects the relocation of sites within the same metropolitan area. The Group also plans to open its first HUGO stores in selected major Europen cities. The amount of retail space managed by HUGO BOSS directly will therefore not change significantly. As a result, the Group expects that expansion effects will not make any major contribution to the development of Group sales in 2018.

Wholesale business predicted to return to growth in 2018

The Group also sees growth potential in its wholesale business by aligning its product range more closely to the needs of its partners and expanding online cooperations. The Group is therefore expecting this distribution channel to grow in 2018, and is forecasting an increase in sales in the low single-digit percentage range. In the U.S. market, conditions continue to be difficult. Nonetheless, based on the progress made in the prior year, the upgrading of the distribution should also make a positive contribution in 2018. As a result, sales performance in the wholesale channel is expected to be similar in Europe and the Americas. Group Strategy

Gross profit margin predicted to remain largely stable

HUGO BOSS expects the Group’s gross profit margin to remain largely stable in 2018 compared to the prior year. The growing share of own retail is expected to have a positive impact on the gross profit margin. The gross profit margin generated through this distribution channel is higher than in wholesale. The Group is also aiming for a moderate reduction in discounts in own retail. However, investments in the product quality of BOSS and HUGO will partially offset these effects. Likewise, negative currency effects from the depreciation of many currencies which are important for the Group against the euro will weigh on the gross profit margin in 2018.

Strict cost management limits increases due to investments in digitization and customer experience

The Group’s operating expenses will increase in 2018, predominantly as a result of further investments in the digital transformation of the business model. HUGO BOSS expects these investments to deliver an important stimulus to sales and to accelerate operational processes. With this in mind, the Group continues to invest in omnichannel distribution and a high-quality customer experience. Brand communication activities will remain an important element in strengthening customer demand in 2018. Strict cost management will limit the increase in administrative expenses forecasted for 2018. The share of research and development expenses in Group sales should remain more or less stable.

Currency effects and cost increases weigh on earnings outlook

EBITDA before special items is expected to develop within a range of -2% to +2% in 2018 compared to the prior year. Cost increases will roughly offset the expected sales growth. This forecast is based on the assumption that translation effects from the depreciation of many currencies which are important for the Group against the euro will have a negative impact on sales and – despite some opposing effects within sourcing costs and operating expenses – also on operating profit. Depreciation and amortization expenses will decline slightly due to the lower investment level seen in the prior year. The financial result is expected to remain virtually unchanged compared to the prior year. The Group tax rate is expected to decline since negative effects associated with the U.S. tax reform adopted in 2017 will not be repeated. However, the absence of one-off income from the release of unutilized provisions in 2017 will place a damper on earnings development. The sum of all these effects should let the Group’s net income increase by a percentage rate in the low to mid single-digits compared to the prior year.

HUGO BOSS expects that investments in its brands, product quality, the shopping experience and the digitization of its business model will promote future sales growth. Accordingly, for 2019 and beyond the Group anticipates that its sales growth will surpass that of the relevant market segment. Given these assumptions, the operating margin (ratio of EBITDA before special items to sales) is then forecast to increase again.

Increase in trade net working capital relative to sales expected

HUGO BOSS is committed to strictly managing trade net working capital also in 2018. However, the Group is predicting an increase in average trade net working capital as a percentage of sales of up to one percentage point. This primarily reflects the fact that delays in the receipt of invoices that favored the development of trade payables in the prior year will likely not be repeated in 2018.

Increase in investment forecasted

The Group’s own retail business will remain the focus of its investment activities in 2018. The renovation of existing retail stores and investments in the cross-channel integration and digitization of the Group’s own retail activities enjoy priority. Alongside the accelerated conversion of existing BOSS stores to the new furniture concept, in 2018 the Group is also investing in opening the first HUGO stores, particularly in Europe, as well as in relocating the outlet at the headquarters in Metzingen. HUGO BOSS will also further expand and strengthen its IT infrastructure, especially at the Company headquarters in Metzingen, particularly with a view to making improvements in the areas of e-commerce and digital brand communication, introducing additional omnichannel services and improving its customer relationship management. Capital expenditure is thus expected to increase to between EUR 170 million and EUR 190 million in 2018. Investments will be financed by operating cash flows in 2018 as well.

Substantial decrease in free cash flow expected

In 2018, the Group expects free cash flow of between EUR 150 million and EUR 200 million. The decline compared to the prior year particularly reflects the expected increase in investments as well as the projection of a higher cash outflow from the 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 2018. Financial Position

Dividend of EUR 2.65 per share proposed

HUGO BOSS pursues a profit-based distribution 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 3, 2018, a dividend of EUR 2.65 per share for fiscal year 2017 (2016: EUR 2.60). The proposal is equivalent to a payout ratio of 79% of the consolidated net income attributable to the equity holders of the parent company in 2017 (2016: 93%). The proposed dividend takes account of the positive earnings development and strong growth in free cash flow in 2017 in particular. Assuming that the shareholders approve the proposal, the dividend will be paid out on May 8, 2018. Based on the number of shares outstanding at year-end, the payout will come to EUR 183 million (2016: EUR 179 million).

The occurrence of opportunities or risks may influence annual financial results

Adverse macroeconomic and industry-specific market developments in key sales markets, rising sourcing costs and unexpected fluctuations in demand in the Group’s own retail business could have negative financial implications, causing the actual development of the annual financial results to differ from this forecast. 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