Letter to Shareholders

Dear Shareholders,
Dear Readers,

For HUGO BOSS, 2019 was an eventful year. We have made significant progress in executing against our strategic initiatives. This enabled us to grow sales of our BOSS and HUGO brands to EUR 2.9 billion, representing a currency-adjusted increase of two percent. I am particularly pleased to see that all our strategic growth drivers – online, retail productivity, HUGO and Asia – recorded above-average growth.

Our own online business grew at a strong double-digit rate for the second year in a row. The encouraging sales growth of 35 percent currency-adjusted was not only driven by new online partnerships entered into last year, but it also confirms the growing importance of our own online store, hugoboss.com. Last summer we incorporated important online markets such as Scandinavia and Ireland, now offering our BOSS and HUGO collections online to customers in 15 countries globally.

We have also made significant progress in the further optimization of our global store network over the past year. We renovated our largest flagship store globally on the Champs-Élysées in Paris, as well as a large number of other BOSS stores. Already today, our BOSS collections are shining in renewed splendor in more than 100 of our retail stores. This has not only significantly elevated the shopping experience for our customers, but also increased our sales productivity in brick-and-mortar retail by a total of four percent.

HUGO also achieved high double-digit growth in 2019 with its casualwear collections, and increased its currency-adjusted growth by a total of five percent. The styles developed by HUGO last summer in collaboration with British singer and artist Liam Payne and presented digitally at Berlin Fashion Week were certainly a key milestone in this regard. As a global brand ambassador, Liam Payne will support key collections and marketing campaigns also this year, winning over mainly young customers of the contemporary fashion segment to HUGO.

From a regional perspective, Asia/Pacific stood out as particularly positive in the last year. Our successes in this important region were nowhere more visible than in mainland China, where we once again achieved double-digit growth. We emphasized the importance of the Chinese market for our business with an impressive BOSS Menswear and BOSS Womenswear fashion show in Shanghai last year.

“Our focus on implementing our strategic initiatives is paying off.”

Our focus on implementing our strategic initiatives is also paying off in Europe. In our by far largest region, we recorded robust growth over the past year. We increased our sales in many key markets, including Great Britain and France, primarily thanks to a highly positive development in our own retail business. In Germany, our home market, we have laid important foundations for future growth. In September, we opened our largest outlet worldwide closely to our headquarters in Metzingen, and also decided to strengthen the entry-level price ranges in the offers of our trading partners in Germany significantly in future.

Alongside the progress made with our strategic initiatives and the successes from a brand and selling perspective, we were nonetheless also confronted over the course of the year with increasing economic uncertainty in some of our key markets. In North America in particular, the market environment continued to deteriorate, weighing on sales and profit growth. Local demand fell, as did the sales generated from tourists there. In addition, our business in Hong Kong was impacted by political unrest and demonstrations. Both meant, that we had to adjust our financial outlook for the full year 2019.

“We were confronted with increasing economic uncertainty in 2019.”

Although we recorded significant sales and earnings growth in the important final quarter, thus achieving our adjusted targets, the financial development for the full year fell somewhat short of our initial expectations. Our operating result (EBIT) in 2019 amounted to EUR 333 million, around four percent below the prior year level. This was due to lower than expected sales growth, increased markdown activity – particularly in North America – and additional investments in our retail business. The latter aims at further progressing with strategically important online partnerships and tapping into additional important markets with our online store hugoboss.com. At the same time, we have accelerated the optimization of our own store network – around 1,100 points of sale globally – and renovated significantly more of our stores than in prior years. In this way, we are significantly elevating the shopping experience for our customers and increasing the desirability of our brands at the point of sale.

Dear shareholders, the desirability of our brands, BOSS and HUGO, remains the most important factor for the long-term success of our company. Consequently, from a brand, selling and operational perspective, we will continue to focus on our two strategic priorities: personalization and speed. First of all, we intend to personalize our offers even more strongly in the future so that we can further increase customer satisfaction. Last year, we reached another milestone in this regard with the successful launch of the “BOSS Made for Me” personalized product range. It is an addition to our well-established “BOSS Made to Measure” range and offers customers new ways to stand out from the mainstream of fashion. We also aim at further accelerating central processes in order to respond even more quickly to market trends. Today, large parts of the development of our HUGO collections are already fully digitized, and distribution to wholesalers is increasingly being carried out through digital showrooms.

We also made further progress along our many sustainability initiatives. We are proud to be included once again in the prestigious Dow Jones Sustainability Index (DJSI). This puts us in the top five of the most sustainable companies in our industry. Through our diverse activities and initiatives in the area of sustainability, we aim to continue generating added value for the environment, society, partners and employees, while also increasing the satisfaction of our customers. We have set ourselves ambitious targets: Our aim to significantly increase the proportion of sustainable cotton in our collections and to reduce our energy consumption and CO₂ emissions are only two examples in this regard.

“It is and will remain our firm goal to grow in a sustainably profitable way.”

We will continue to work consistently on executing against our strategic initiatives, thereby further increasing the desirability of BOSS and HUGO. At the same time, it is and will remain our firm goal to grow in a sustainably profitable way. The structural improvement of our profitability plays an important role in this. Although overall economic uncertainty remains high in the short term and is expected to burden our financial results in 2020, I am convinced that we have built a robust platform over the last few years to increase our operating margin sustainably. This will form the basis for sustainable shareholder value creation. In addition, we will continue to focus strongly on a sustainable and attractive dividend policy to ensure our shareholders benefit from the long-term success of our business.

I am fully convinced that HUGO BOSS is well prepared for long-term success. In conclusion, I would like to thank our more than 14,600 employees for their extraordinary commitment and the great passion with which they work every day for the satisfaction of our customers and the success of our brands, BOSS and HUGO. I am very confident that, together, we will achieve our targets for 2020 and beyond.

Sincerely yours,

Mark Langer
Chief Executive Officer