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Letter to Shareholders

Dear Shareholders,
Dear Readers,

A year ago, we announced that 2017 would be the “year of stabilization”. Our stated goal was to stabilize sales and profits. We also initiated strategic change designed to bring HUGO BOSS back to sustainable profitable growth.

“We have achieved what we set out to do.”

Today, one year later I am able to say that in 2017 we achieved what we set out to do. We delivered the financial results we had projected. In certain areas, we even exceeded our original forecasts. For example, we managed to increase sales by 3 percent when adjusted for currency effects from an original starting point of sales being unchanged on the prior year. This was mainly due to improvements in the own retail business from quarter to quarter. In the final quarter, we even grew more strongly than at any point in the past five years.

All regions played a part in this success. We grew solidly in Europe thanks in particular to our strength in the British market. Adjusted for currency effects, sales in Great Britain increased by 9 percent. In Germany, sales were stable even though the physical apparel retail sector continued to be under pressure.

In the Americas region, we managed to reverse the trend. We posted some impressive figures in our U.S. retail business in particular. This is very pleasing news at a time when major department stores are seeing declining customer traffic and discounting remains high. In Asia, China is still the main driver of growth. On the Chinese mainland, we built on the good momentum from the prior year and recorded double-digit comp store sales growth.

Nowhere else was the progress made during the course of the year more visible than in our online business. The relaunch of the website at the start of the year resulted in a significant improvement to the overall brand experience, but the user-friendliness of the site and the assortment did not initially match our customers’ requirements. We corrected this using a variety of measures – including shortening load times, making the site more intuitive to navigate and aligning the product range to better meet the requirements of online consumers – and the result was sales growth in the double-digit range.

We are heading in the right direction, even if we cannot yet convert this increase in sales into increased profit to the extent we would like. This is mostly attributable to the fact that we have invested heavily in repositioning our brands and in the digital transformation of our business model. The strong euro has also acted as a major drag on our operating profit, which remained roughly stable at EUR 491 million.

“Many of the changes will only become visible to customers this year.”

We have also made very good progress in implementing our strategy. Many of the changes will only become visible to customers this year. This particularly applies to the two-brand strategy. The consistent focus on BOSS and HUGO has also been evident in our stores since the beginning of the year. With the integration of BOSS Orange and BOSS Green into the core brand, we now provide customers with a consistent offering which covers all occasions. We showcased a collection at our fashion show in New York in February that broke down the boundaries between traditional designs and casual, sporty looks – and the feedback was extremely positive. However, we are not forgetting the womenswear collection, without which the BOSS brand would not enjoy the reputation that it does. Women’s fashion remains hugely relevant from a commercial standpoint. And our fashionable and progressive HUGO brand is now much more consistently positioned in the contemporary fashion sector than a year ago.

We have also made great strides in digitally transforming our business model. By this, I principally mean the increasing digitization of our product development, production and distribution processes. For the first time, we have sold clothes from the HUGO collections to our wholesale partners via a digital showroom. And with such services as Click & Collect and Order from Store, we are meeting our customers’ expectations of an omnichannel high-quality shopping experience.

There can be no doubt that the pace of change we are seeing is huge. This includes both the expectations and requirements of our customers as well as our competitive environment. Which means that in our decision-making and actions, we will have to be even quicker and more agile than before. For that reason, we are making our structures and processes more streamlined and allowing our individual employees more freedom.

“We want to keep the momentum from the last quarter of 2017 going and step up the pace of growth even further.”

We also want to be measured against the further progress we make towards implementing the strategy this year. Likewise, we want to keep the momentum from the last quarter of 2017 going and step up the pace of growth even further compared to the prior year. However, negative currency effects will weigh heavily on our sales and profit growth in the short term. We will also invest in the quality of our collections as well as in the ongoing digitization of our business model. Therefore, we are forecasting profit growth to be largely stable this year.

Last but not least, I would like to express my deep appreciation to our employees for all their efforts made throughout the year. They make HUGO BOSS what it is. I would like to thank them for the extraordinary commitment they have shown. I am certain that you, dear shareholders and customers, will experience the passion and enthusiasm of our employees also in 2018. We have created the best foundation for achieving our goals both for the coming year and beyond.

Sincerely yours,
Mark Langer
Chief Executive Officer

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