Hugo Boss AG

XETRA:BOSS

Earnings Call Transcript 2018-Q1

[Operator]

Good day, and welcome to the HUGO BOSS First Quarter Results 2018 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Yves Müller, CFO. Please go ahead, sir.

[Yves Müller, CFO & Member of Managing Board]

Good afternoon, ladies and gentlemen, and welcome to our First Quarter Earnings Conference Call. In the next 15 to 20 minutes, I will present you our most recent financial performance before opening the floor to your questions. HUGO BOSS made a strong start to 2018. In the first 3 months of the year, we confirmed the positive sales trend of the previous quarter, despite some significant headwinds in the European apparel market. The Americas and Asia were the engines of growth, recording healthy high single-digit and low double-digit sales increase in currency-adjusted terms, respectively. First quarter group sales increased by 5% excluding currency effects, impacted by the appreciation of the euro against almost all major currencies. Revenues remained on the prior year level in reported terms and reached EUR 650 million. By region, sales in Europe were up 3% on a currency-adjusted basis, despite a deterioration of market conditions in the later stages of the quarter. Growth was similar across the Own retail and wholesale channels. Overall, the U.K. continued to outperform the rest of the region and was up 12% in currency-adjusted terms, despite a moderation of tourist demand compared to the prior year. The Benelux markets in France also grew solidly, recording sales increase of 7% and 2%, respectively. The business in Germany was challenged by the overall weakness of the German apparel market. In addition, the renovation of 2 larger outlet operations had a negative sales impact. Total revenues in Germany declined 5%. In the Americas business was up 7% on the currency-adjusted basis. Sales improved in all markets. In the largest market, the U.S., our business increased 6% on a currency-adjusted basis. Double-digit growth in Own retail more than offset a low single-digit sales decline in the wholesale segment. Wholesale sales were impacted by a distribution change at Macy's, where we migrated our business with the former BOSS Green and BOSS Orange line to a concession model, which we account for as Own retail. In our Own retail operations, we benefit from changes in the merchandising of our stores as well as from operational improvements, especially the expansion of our smart casual and athleisurewear offer, to which we have been allocating more retail space over the past 12 months, led to significant volume growth. As a result, U.S. comp store sales improved at a double-digit rate in the quarter, also including increase in the online business of more than 50%. Sales in Asia were up 12% excluding currency effects. The performance was positive across the region. Sales in the key Chinese market increased 11%, driven by continued growth in Mainland China, but also solid double-digit increases in Hong Kong and Macau. The 2 latter markets continued the recovery they had already started in the second half of last year. Looking at the other major markets of the region, sales in Japan increased at a double-digit rate in currency-adjusted terms, supported by strong tourist demand. And South Asia -- Southeast Asia even topped this growth. Groupwide, Own retail sales increased 8% on a currency-adjusted basis in the first quarter. On a comp store basis, the Own retail channel was up 7% in line with the performance in the final quarter of 2017.As mentioned in my original comments, the Americas confirmed the strong trend established over the course of the last year and recorded a double-digit increase. Asia grew in high single-digits and sales in Europe Own retail business advanced at a mid-single-digit rate on a comp store basis. Unchanged to the pattern in 2017, better conversion rates and higher volumes drove growth. Average selling prices declined in line with our strategy to strengthen our footprint in casualwear and athleisurewear where selling prices are generally lower compared to formalwear. By retail format, growth was consistent across directly operated stores and outlets. The online business was up 43% in the first quarter. In addition to a weak comparison base, growth benefited from the improvement measures implemented last year. In mid-March, we also changed the site structure and layout to create 2 distinct brand worlds for BOSS and HUGO, resulting in the clear differentiation between the 2 brands, greater visibility of the HUGO brand and better guidance of the user. First indications also point to a steady improvement of conversion rates since that change. As a result, we're confident to generate strong growth in our online business also going forward. Beyond the further enhancement of digital presence, we have also progressed with the integration of omnichannel elements in physical stores, a key consideration in the development of our new store concept. The new concept was used in key stores that we opened and renovated in the first quarter. Our new store in Mexico City was the most prominent new opening in the first quarter. The picture on the slide shows our storefront in the King of Prussia mall in Philadelphia, where we moved to a better, more central location. Renovations in the quarter included our BOSS store in Copley Place in Boston, which reopened in February. We will also start opening the first new HUGO stores in the next few months. Key locations will include Amsterdam, where we will cut off the part of the BOSS store and dedicate it to HUGO, and London. Turning to the wholesale channel. First quarter sales were up 1% on a currency-adjusted basis. The low single-digit decline in the Americas was more than compensated by a moderate increase in the European wholesale business. Within our global wholesale business, online clearly outperformed the physical channel, while our business with large marketplaces and the online platforms of leading department stores grew at double-digit rates. Sales with stationary retailers were down in the light of the pressure they are facing from ongoing traffic declines.Finally, sales in the license business were down 1% in the quarter, reflecting the anniversary of the takeoff of our fragrance license by Coty but also timing effects, which were reversed in further course of the year. New product innovations such as the BOSS United fragrance, an extension of the BOSS bottled family that will launch shortly before the kickoff of the Football World Cup in summer and the launch of the new campaign for our blockbuster fragrance, The Scent, will ensure solid growth in the business in the remainder of the year. Sales in the total BOSS businesses increased 7% excluding currency effects in the first quarter. The performance was particularly strong in casualwear. This part of the collection has clearly benefited from the quality investments we made in the Spring/Summer 2018 collection. The upgrade of the former BOSS Orange offering also means that we are giving more space to it in our stores now. HUGO sales declined 6% in currency-adjusted terms. The brand's casualwear business continued to grow at double-digit rates, above all, building on the success of the reverse logo theme that has opened up new customer groups for the brand. However, as expected, distribution changes are having net gross impact on HUGO sales in 2018. These changes relate to some spaces in department stores, which HUGO is giving up in favor of BOSS, because its branded proposition is a better fit with the customer. We are also reducing HUGO's exposure to the outlet channel and are taking it out of BOSS stores to ensure that it's distinctively positioned. We are convinced that this distribution alignment is necessary to shorten HUGO's fashion-forward contemporary proposition. By gender, the 6% growth of our menswear business was driven by improvements in the collection, growing brand desirability and, to a lesser extent, the addition of retail floor space. The latter came at the expense of our womenswear business, which declined 3% in currency-adjusted terms. Womenswear sales in the wholesale channel, however, were up, reflecting healthy demand from retail partners, in particular, in Europe where BOSS holds a leading position also in this market segment. Turning below the top line. The gross profit margin declined by 40 basis points to 64.0% in the first quarter. This was due to the quality investments I mentioned earlier. The growing share of Own retail in our sales mix only partly mitigated this effect, all other factors were broadly margin-neutral. We also made further progress in the management of our operating expense base, although exchange rate effects clearly had a positive impact here too. The lower pace of space expansion, the successful renegotiation of rental contracts and the closure of unprofitable stores completed at the end of 2017 helped keeping Own retail cost broadly stable. In addition, some phasing effect in our marketing budget as well as the reclassification of certain costs because of an IFRS change also contributed to the 4% decline of serving and distribution expenses. In contrast, G&A expenses were up 2% reflecting further investments in the digital transformation of our business model. As a result of the operating expense decline, first quarter EBITDA before special items increased 1% compared to the prior year quarter, amounting to EUR 99 million. As we had guided at the time of our Analyst Conference in March, negative currency translation effect held back profit growth. In the first quarter, we incurred around half of the EUR 10 million impact we forecast for the full year. This was in line with our original expectations. Mainly driven by a lower D&A charge following the decline in investments in 2017, EBIT was up 8% in the first 3 months of the year. Despite a higher tax rate, net income was still up 3%, amounting to EUR 50 million. From a regional perspective, the slight sales growth in Europe was not enough to offset operating expense inflation so that the regional margin declined by 120 basis points to 29.6%. In the Americas, the margin drop to 10.1% was largely caused by negative currency translation effects, which were related to the weakness of the U.S. dollar compared to the prior year period. Exchange rate effects played a role in Asia too. However, strong sales growth and strict cost discipline more than offset the impact leading to a margin expansion of 270 basis points. 28% profitability in Asia is now close to our European levels again. Let me also give you some more color on key balance sheet items and cash flow performance. At the end of March, inventories were up 5% in euro terms and 11% excluding currency effects, reflecting an increase in our own retail buy to make sure we minimize stockouts and exploit additional sales opportunities. Overall trade net working capital grew 3% on the currency-adjusted basis. Nonetheless, the rolling 12-month average of trade net working capital over sales declined to 18.5%, 130 basis points below the prior year level. Capital expenditure decreased 23% in the first 3 months due to a different phasing compared to the prior year. The timing of renovation projects, the main area of investments in 2018, will focus on the period between April and October. In addition, investments in Own retail declined due to a lower number of new store openings. IT investments, however, were up compared to the previous year. Because of the increase of trade net working capital, free cash flow amounted to a negative EUR 47 million in a quarter that is traditionally small from a free cash flow perspective. Nonetheless, net debt still halved at low absolute level reflecting the strong cash generating over the last 12 months. Ladies and gentlemen, the results of the first quarter were in line with our expectations set out in March. As a result, we are confirming our full year expectations today. Group sales growth is set to accelerate to a low to mid-single-digit increase excluding currency effects in 2018. All regions are expected to contribute. By distribution channel, we stick to our forecast of a mid-single-digit comp store sales growth and Own retail despite the better performance in the first quarter. This outlook incorporates the effects from an increasingly tougher comparison base in the further course of the year. In the absence of any material net impact from store openings and closures, total Own retail sales should increase at the same mid-single-digit rate too. We are also forecasting low single-digit currency-adjusted growth in the wholesale business. Sales in the license business should increase at a mid-single-digit rate. The group's gross margin is expected to remain broadly stable in 2018. Positive channel mix effects and lower discounts in Own retail should contribute positively. These benefits will be offset by an upgrade of the value proposition of our collections, including a double-digit million euro investment in product quality. Considering this investment and some currency translation effect, gross margin development is likely to be negative also in the full first half year before improving in the remainder of 2018. Considering also tight operating expense management, EBITDA before special items is expected to perform within a range of minus 2% to plus 2%, including the aforementioned negative currency impact of around EUR 10 million. Net income growth will be higher supported by lower depreciation charge as well as the normalization of the group's tax rate to levels around 26% in 2018. Investments will increase to between EUR 170 million and EUR 190 million, largely reflecting the step-up in store renovations in 2018. These investments and higher working capital needs will also affect free cash flow generation. In line with our guidance issued in March, we expect free cash flow to amount to between EUR 150 million and EUR 200 million. Ladies and gentlemen, HUGO BOSS had a good start to 2018. Sales increased on a broad base that means across all geographies and in both Own retail and wholesale. Where we were still unsure about the acceptance of our collection changes at the same time last year, we can now report back on a strong reception by end consumers as indicated by the current levels of growth in Own retail. I acknowledge that these improvements come with ongoing investments that limit profit growth in 2018, however, the top line momentum that we have generated also proves that the investments in product quality and the desirability of our brands and the quality of our retail execution, online and off-line, are paying off. We are committed to building on the progress we have made. We will update you on our plans for the return to profitable growth in 2019 and beyond at an Investor Day, which we will be hosting on Thursday, November 15, in London. Please save the date in your calendars. We look forward to welcome you at the event. But before looking out too far in the future, let me now answer your questions on today's set of results, please?

[Operator]

[Operator Instructions] We will now take our first question from Fred Speirs of UBS.

[John Frederick Speirs, Director & Research Analyst]

Three questions for me, please. The first would be on Europe. I'd like to understand how much like-for-like was impacted by the bad weather in March. So I wonder if you could give us a sense to how much weaker March was compared to January and February? And also have you seen a reacceleration in Europe in April? Second question was around the operating cost phasing. Sounds like marketing spend was down a bit in Q1. How should we think about the phasing and marketing costs through the balance of the year? And can you confirm your underlying cost assumptions for the full year unchanged? And last one would be on the gross margin. You talked about the negative development we should expect in H1, which implies H2 up, of course. What are the main factors that drive the expectation for gross margin to improve in the second half? Is it more a bigger impact coming from lower rebates in the second half or is it, perhaps, phase in the product quality investments?

[Yves Müller, CFO & Member of Managing Board]

Mr. Speirs, thank you very much for your questions. First of all, you were touching Europe. Yes, indeed we had some -- we had less growth in March in comparison to January, February due to the weather conditions. Yes and that's it, actually, we don't give any forecasts regarding the current performance in the course of the year. I hope you'll respect this. The second question was relating to operating cost items. Yes, I can somehow confirm that we will have the full year effect of our costs. And yes, we had some cost savings in the first quarter, and those cost savings were coming from some phasings effects from 1/3, if you had touched to marketing expenses, the other 1/3 is coming from -- the lower marketing spend is coming from marketing efficiency and the last 1/3 is coming from an IFRS change since investments into store furniture are now not recording anymore as marketing expenses but as net sales reductions. Coming to gross margin, we're touching the second half of the year. Overall, it will be improving because of channel mix effects, lower discounts, so it means lower retail rebates in our Own retail channels, and as well we expect for the second half that we don't have this headwind from currency as I pointed out.

[John Frederick Speirs, Director & Research Analyst]

Maybe just coming back to that Europe question. I suppose, could you at least confirm if March was positive for Europe like-for-like?

[Yves Müller, CFO & Member of Managing Board]

Yes, March was in the mid-single-digit positive.

[Operator]

We will now take our next question from Antoine Belge of HSBC.

[Antoine Belge, Global of Consumer and Retail Research]

It's Antoine Belge with HSBC. Three questions, please. First of all regarding your online performance, quite strong, but if we look at the run rates close to 50% was pretty similar to what we had in Q4 was the basis of comparison was much easier, so maybe some comment around online. Second question, you're investing -- you've invested quite a lot in terms of -- in the products, especially in quality and sometimes actually reducing the price. So could we have an idea of the impact on volume and maybe also the impact on price mix of those initiatives? And thirdly, with regards to the U.S. market, what's the latest development regarding your relationship with key accounts in department stores?

[Yves Müller, CFO & Member of Managing Board]

Thank you very much, Mr. Belge, for your questions. Coming back to question number one, the online performance. Overall, you're right that we had a lower comparison base in the fourth quarter '17 and in the first quarter in '18. So in the first quarter '18, I repeat, we recorded an increase of 43% in comparison to the prior year. We still -- we are still very confident that we will achieve, over the whole year, double-digit growth rates, and we see really positive momentum. And I can assure you that I will be focusing on this online development because this is very crucial in the further course of HUGO BOSS -- for HUGO BOSS. Secondly, the investments in product quality. I think the investments in quality really paid off. We did this investment in product quality primarily on the casualwear and casual really picked up double-digit -- for double-digit growth in the first quarter. So we are very much convinced that we did the right in order to position the former BOSS Orange and the new BOSS casualwear positioning. Overall, I can confirm that the volume growth overall overcompensated the small price decline. And I think, this is what we expected since we are seeing higher conversion rate in our own stores and this is well received by the customers. And so I'm positive about this because the customer base is growing going forward. Coming back to the U.S. market, we see overall a very split situation we have regarding some department stores a good development and some had not a good development or was decreasing to prior year. So it was a mixed feeling. Overall, the wholesale business was a slight decline, but I want to point out that we have one effect at Macy's because we changed the wholesale business model to concession now and this concession model, especially at Macy's, where we have casualwear and athleisurewear now under our own product and price control.

[Antoine Belge, Global of Consumer and Retail Research]

Maybe just a quick follow-up on that. When you look at your full-on winter, when you look at the next season orders in the U.S., are you seeing a sequential improvement? Back to what you just said about Macy's, so that is a negative effect in the wholesale line and then the slight positive effect in the contribution from new stores. Is that correct?

[Yves Müller, CFO & Member of Managing Board]

Yes, that's correct, yes. So this -- there is an underlying effect that wholesale -- because we don't show the net sales any longer for casualwear and athleisurewear for Macy's under wholesale. We will show them under shop-in-shop under directly operating stores. So this is a kind of basis effect. But I want to point out that without this effect, the underlying performance in the wholesale market in the U.S. in the first quarter was stable.

[Antoine Belge, Global of Consumer and Retail Research]

Okay, and with regards to the next season, maybe potentially showing a better outlook compared to the current season in the -- specifically, with U.S. department stores?

[Yves Müller, CFO & Member of Managing Board]

Overall, the Fall/Winter collection has been very good received by our customers. And there was a slight increase in comparison to Spring/Summer 2018. So Fall/Winter had a positive development.

[Operator]

We will now take our next question from Edouard Aubin of Morgan Stanley.

[Edouard Jean Laurent Aubin, Equity Analyst]

On your free cash flow, the negative EUR 47 million evolution in Q1, I think in Q4 '17, you had a positive impact of EUR 20 million due to the timing effect of some trade payable. Was there a reversal in the first quarter, which would explain the negative figure in the first quarter? And in terms of your inventory, should we be worried about higher markdown risk due to the increase? Or is that basically just exactly in line with what you had budgeted? And finally on just to come back, sorry, on the gross margin guidance for the second quarter, you said the evolution would be negative in the second quarter. Should we assume the same magnitude than in the first quarter on 40 basis points, would that be fair?

[Yves Müller, CFO & Member of Managing Board]

Thank you very much for your questions. First, regarding the cash flow. We had a decline in the first quarter of EUR 47 million. And yes, there was one timing effect and this reversed now in the first quarter. We were pointing out a EUR 20 million last time and this is -- this can be somehow confirmed. On the other hand, we saw that we had an increase in inventories that you just mentioned and this led somehow to the negative cash flow as well. Your second question was related to the inventory increase. Overall, this inventory increase was expected, and this was mainly due to the retail buy that we are having in order to support sales in the further course of the year. Regarding gross margin, actually, it's too early to call. What we always said is that due to the headwinds of the euro, we will see some effect in the second quarter, which will be reversed overall. Overall we are confirming that the gross margin for 2018 will remain on the same level than in 2017, and there are some different effects, but the rebates and the channel mix effect cannot be now confirmed because May and June is still open. From a tendency-wide, we want to limit the discounts. So we want to shorten the sales periods, and this will apply to the June results in Own retail business.

[Operator]

We will now take our next question from Thomas Chauvet of Citi.

[Thomas Vincent Chauvet]

I have 2 questions, please. The first one on HUGO. I guess the negative performance was in line with your expectations, even you're cleaning up wholesale and closing some outlets. Can you possibly quantify the impact of these closures? And how long are you expecting that disruption to continue for? On HUGO still, if you could provide maybe just retail LFL for the branding in the period. Secondly, on the retail network, your store count is down by about 30 units net or that's about 3% year-on-year, but contribution from space seems to be plus 1%. Can you give a bit more color on that and remind us the plan for gross openings and closure for the remainder of the year?

[Yves Müller, CFO & Member of Managing Board]

Okay, thank you very much. I don't know if I get your second question right. You were asking about some more insight regarding openings and closures, right?

[Thomas Vincent Chauvet]

Well, your retail LFL up 7% in the period, and I wanted to know whether -- where the space contribution came from, given you're starting to have a quite negative now evolution of your store network. So network was down 3% year-on-year, but you had still a positive impact from your space, so I was just wondering -- wanted a bit more color on that. And then, yes, the gross opening and closures for the rest of the year.

[Yves Müller, CFO & Member of Managing Board]

So perhaps, starting with the second question, the opening and closures. I think overall, there will be no major changes regarding opening and closures. And the overall sales distribution will remain overall the same, and there will be no major space expansion in course of the year. So what we are doing is, we are really focusing on sales density and sales productivity. This is what we are doing. And besides this, there will be some store optimizations here and there, some relocations and more optimization of the store portfolio. But overall, there will be no space expansion. There will be rather -- we will be focusing on productivity. Regarding HUGO and the performance, we recorded negative sales development of minus 6%. This is actually what we have expected, as I pointed out, because we want to limit overall the distribution in the outlet channel. And actually, when we have now -- we have to -- on the distribution side, we have to fulfill and execute our strategy to say, we have 2 different brands, BOSS and -- BOSS on one side and HUGO on the other side. And so still there are some stores, which have both BOSS and HUGO, and so we get HUGO out of the BOSS stores in order to have a clear proposition to the consumer, and we are doing this in course of the year. So what I expect is that these distribution changes will be accomplished at the end of the year. And in addition to this, what we are doing is that we are opening new HUGO stores, as I mentioned, in Amsterdam and in London where we are piloting our new HUGO concept.

[Thomas Vincent Chauvet]

Just to clarify, so you're expecting that disruption -- that level of disruption to continue until Q4 for HUGO?

[Yves Müller, CFO & Member of Managing Board]

During the course of the year, overall, what I'm saying is that we will continue with these distribution changes during -- in course of the year.

[Thomas Vincent Chauvet]

Sure. But when does that stop, I mean when are you going to basically -- when is that disruption going to end? When is your distribution change plan ending?

[Yves Müller, CFO & Member of Managing Board]

This distribution change will end at 2018, end of 2018.

[Thomas Vincent Chauvet]

So you're expecting disruption throughout the year, basically?

[Yves Müller, CFO & Member of Managing Board]

Yes.

[Thomas Vincent Chauvet]

Okay. What were the like-for-like for HUGO in the period?

[Yves Müller, CFO & Member of Managing Board]

Overall, the like-for-like has been slightly positive. So if you take these -- the underlying was slightly positive, if you take these distribution channels out.

[Operator]

We will now take our next question from John Guy of MainFirst.

[John William George Guy, Managing Director]

I have got 2 questions. Just on the IFRS 15 accounting treatment of marketing spends. What was the euro million reduction to marketing spend in the first quarter, was that around the mid-single-digit to high single-digit euro millions? That's my first question. And sticking with marketing, you've moved from Formula One to Formula E sponsorship, and I think with that there's a seasonality and timing effect on marketing, I think, from 1Q and 3Q to 2Q and 4Q, respectively. So what I wanted to know is whether or not the overall budget, first of all, is changed with the change in sponsorship? And if so, by how much?

[Yves Müller, CFO & Member of Managing Board]

Okay, regarding the marketing expenses, it has been overall a mid-single-digit euro amount. And as I said, there have been 3 effects. One is the IFRS 15 change, which covers 1/3 of the change. The other 1/3 is marketing efficiency, because I see efficiencies in the marketing that we're spending, and the other 1/3 is going to marketing shifts and this relates to your second question, actually this goes to Formula E, because you're right, we are starting in Q2 and this will -- this is predominantly the effect of this phasing or shifting expenses.

[John William George Guy, Managing Director]

Okay, great. But the absolute amount of marketing spend is basically unchanged from Formula One to Formula E, it's just a question of timing?

[Yves Müller, CFO & Member of Managing Board]

Actually, it's going a little bit down.

[Operator]

We will now take our next question from Volker Bosse of Baader Bank.

[Volker Bosse, Co]

Volker Bosse, Baader Bank, with 3 questions. First, could you please provide us with an update on your process and introducing multichannel services on a global basis, so where do we stand and what is there to come in the course of this year? And the second question would be on your online concessions business model, as you stated earlier you want to roll it out, that, so also here, perhaps, an update, what is done and what is to be -- can be expected for the rest of the year? And finally, on the margins in Americas, margins declined. Could you give us the background here as you pulled out of the discounting department stores, but how do you see the development here and what is the background?

[Yves Müller, CFO & Member of Managing Board]

Yes, coming to your first questions. So what we are really doing is we are in course of the rollout of our omnichannel services, this means click and collect and order from store. And what we did in the first quarter that we rolled out -- rolled it out to Belgium and Italy, so we have some basis effect there in 2 European countries. And in addition to this, we will have order from store in the fourth quarter in the United States, the big market where we have a big retail space. So we have -- we will then connect online in our retail own stores, so this will happen in the fourth quarter of 2018. Coming to online concessions, we are making great progress there overall. We have already some department stores in Europe, especially in the Netherlands and in Denmark. We converted the model from wholesale to concession model, and we are in recent negotiations, as I told you in Analyst Conference, and we're making big progress there. And regarding the margins decline, actually, our margin was not affected by the discontinuation of our U.S. wholesale. This was deliberately done and as you can see, with our own U.S. retail performance growing double-digit, we see that this is the right way to improve our U.S. business. And actually, the margin decline on an EBITDA basis is predominantly coming from the translation effect from U.S. dollar to euro currencies.

[Operator]

We will now take our next question from Mark Josefson of equinet.

[Mark Josefson, Research Analyst]

I wanted to explore the German sales decline, 5% in Q1 a bit more. How did that vary between the wholesale and retail? In your prepared remarks, Yves, you mentioned some space closures that retail would impact that, but what was the performance retail versus wholesale in Germany, please?

[Yves Müller, CFO & Member of Managing Board]

Yes. Overall the sales decline was minus 5%, as I reported. And actually, the wholesale performance was in line, actually, with the retail performance, there were no big differences. And on the like-for-like performance, we had a low single-digit negative performance, but the retail like-for-like was better than minus 5%.

[Operator]

We will now take our next question from Warwick Okines of Deutsche Bank.

[Warwick Okines, Research Analyst]

I've got 3 quick questions, please. Firstly, in your prepared remarks, you said that market conditions had deteriorated at the end of the quarter in Europe. I just wanted to check that was purely a weather comment rather than anything else? Secondly, returning to Macy's and the conversion to shop-in-shops, how many units did you do and when did that happen? I'm just wondering whether that's an effect that will continue all the way through the year? And thirdly, could you give some sense of when you think the license performance will return to the more -- to the mid-single-digit growth that you've guided for the year, just trying to understand how the timing effects will phase through the year?

[Yves Müller, CFO & Member of Managing Board]

So Warwick. So one is, I talked about the market deterioration and you asked me whether this was the weather comment or not, and I can say yes, overall. Secondly, you touched Macy's. We will see this effect, yes, throughout the year, and we talk about there about 30 to 40 doors overall at Macy's, it has been converted. And regarding the license business, we will see some positive effects -- some small positive effects in Q2, but it will move on further in the second half of the year in order to achieve our guidance of mid-single-digit growth.

[Operator]

We will now take our next question from Jurgen Kolb of Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

First of all, on your conversion rates. You said that the conversion rate improved. I would assume that's both online and in the physical stores, if you could maybe confirm that. Secondly, the like-for-like growth, which obviously, was very strong and impressive, and could we have that maybe excluding the online business and how that performed? And thirdly, the retailers' feedback on your Spring/Summer collection but also on the Fall/Winter collection. You mentioned that there's a good feedback for the Fall/Winter collection. Now given that your Own stores performed so strongly, wouldn't you have expected and maybe an even stronger feedback or order process from the retailers? Because as it looks, your collections are selling well, so that should be a very strong statement then also for the retailers to order both HUGO but also BOSS.

[Yves Müller, CFO & Member of Managing Board]

So regarding conversion rates, so our store conversion rate improved by high single-digit growth rates, and the conversion rate improvement online are even double-digit. Especially when it comes to the new site, the new structure of our site that we have launched in the middle of March, so this is one effect. So -- then you were talking about the like-for-like performance without online and the like-for-like performance in directly operated stores, which includes free-standing stores and shop-in-shop, they increased like-for-like by 5%. And then when it comes to the collection, yes, we are all -- we are optimistic about the order intakes, we know the order intakes, and we know that they were better than the Spring/Summer collection. So we will see now -- what we are seeing now is already the next big order intake in the summer in the second quarter of the year for the Spring/Summer collection 2019. So we see overall, a very positive development, and we will update you in August about this development.

[Jurgen Kolb, Analyst]

Very good. And also the sell-through that you've heard from retailers with respect especially to the HUGO brand but also the BOSS brand, was throughout the picture positive? Or have you heard anything what maybe leads you to change anything on the collection side?

[Yves Müller, CFO & Member of Managing Board]

No. We have received positive signs.

[Operator]

We will now take our next question from Melanie Flouquet from JPMorgan.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

My first question is [ should I come back ] and come back to casualwear versus formalwear, casualwear appears to have accelerated in Quarter 1, and I was wondering whether you could share with us whether this is mainly due to space allocation? So to what degree is casualwear outperforming its higher space allocation since Q1? My second question is on online, sorry. If I look at the 2 years back -- going back to Antoine's question, online is up 16% when it was up a lot more in Quarter 4 on a 2-year basis. What did you do differently that may have hampered somewhat the growth in online? And what can you do to reaccelerate it moving forward? My next question is on inventories. You are guiding for like-for-like on a full year basis, that is actually a bit more neutral than the growth that you achieved in Quarter 1. Your inventories are up 11%, so actually, up quite remarkably. Why are you comfortable that this will carry limited markdown risk? And then, sorry, my last question is a bit more boring, it's relating to the depreciation charge down 13% -- depreciation and amortization down 13% year-on-year in Q1. Is this the degree to which we should expect it to be down on the full year basis? And what about next year, do we go back up because CapEx go back up in '18?

[Yves Müller, CFO & Member of Managing Board]

Okay, your questions regarding casualwear, we -- as I pointed out, we had a double-digit increase. And I would say, we had -- 1/2 of this increase was coming from space allocation and was -- and the other 1/2 was actually the underlying performance. When it comes to online, we are very satisfied with the performance we had. We are well in line of our expectations, and we are well above our guidance so far regarding online, and I think we will maintain this in course of the year. Regarding depreciation charge, yes, overall, it will go down overall, but not at the same amount that we have seen in the first quarter of this year. But overall, I see some positive effects as well as from more, I would call it, capital efficiencies because the shelf construction there's still some deficiency potential to when it comes to construction costs of new openings and especially when it comes to remodeling costs. And the inventories, yes, they were up 11%. Right now, I don't have the concerns so far when I see the underlying performance, and the markdown has been well under control in the first quarter of the year.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

But is there anything that you did differently online, sorry to go back, in Q1? Because I appreciate you're satisfied, but I suspect you were facing minus 27%, so this is a 16% growth over 2 years, 8% per annum, I mean that's not striking me as a very high growth.

[Yves Müller, CFO & Member of Managing Board]

We did -- what we did in the first quarter of this year, we changed the structure of our site. So we had some limit promotions during the course of this period of 4 weeks. So actually, we operated online with lower discounts and this was what we expected. So I -- we overall grew our customer base and overall, we see good development in online.

[Operator]

We will now take our next question from Piral Dadhania of ARB (sic) [ RBC ] Capital Markets.

[Piral Dadhania, Analyst]

This is Piral here from RBC. Most of my questions have been answered, but could I please just follow up on your casual versus formalwear. Could you please provide a bit more color on the formalwear business and the trajectory for 2018? I appreciate that you're allocating less space to the category, but just in terms of your expectations as we progress throughout the year. My second question is on potential benefits from poor weather in relation to your outerwear business. I appreciate that selling conditions were difficult in March but did you see any pickup in sales to your outerwear categories? And could you just remind us how much of the mix that is for the brand? And then finally, just in terms of traffic, I think you've spoken a lot about conversion and ASP, but could you just give us an indication of what the traffic trends were both for your physical retail stores and your online stores?

[Yves Müller, CFO & Member of Managing Board]

I start with the last questions regarding the traffic and the trends. So regarding off-line, or brick-and-mortar business, we had a slight increase in traffic overall at a low single-digit increase in visitors in our stores. And regarding online, we had a double-digit increase with -- in our visitors in our online stores. Regarding the potential of selling of outerwear, I have to come back to you later on, perhaps this is okay for you, just to give you the amount, but overall, this has had, really, a small effect in March, because it was so cold in Europe. So it's actually -- overall, it's neglectable. I heard from our sales guys that we sold, of course, more outerwear in this period but it's -- overall, it's neglectable, but if you like, we can come back to you after the Q&A. And regarding casualwear and formalwear, yes, overall, we stick to our guidance, and we see double-digit growth in casualwear overall and a low single-digit increase in formalwear overall in course of the year.

[Piral Dadhania, Analyst]

Okay, great. Could I maybe follow up with one short question? Have you seen any changes in your demographics? And could you maybe give us an update on the CRM activities that you're conducting online and off-line? Obviously, with the growth rates you're seeing in casualwear, are you seeing any trend downwards in your -- in the average age? And maybe any update on your CRM initiatives?

[Yves Müller, CFO & Member of Managing Board]

Yes, I can confirm that due to the CRM and our customer base regarding the increase in online and overall, due to the offering of casualwear, we see some trends that the customer base is getting slightly younger.

[Operator]

This concludes today's questions-and-answer session. So I would now like to turn the conference over to Yves Müller for any additional or closing remarks.

[Yves Müller, CFO & Member of Managing Board]

Yes, before closing today's call, let me take the opportunity of this last analyst conference call at HUGO BOSS to thank my colleague, Dennis Weber, for his work and dedication to the company in the past 8 years. In his role of Head of Investor Relations, he has been your key point of contact and support and vice versa, he was instrumental in feeding your views, expectations, concerns into the company in order to enable an informed decision making. On behalf of my Board colleagues as well, I wish him all the best in his new role at Deutsche Lufthansa in Frankfurt. Applause. And at the same time, I'm excited that Christian Stoehr will join our group. Many of you will know Christian from Adidas, where he has gained excellent industry knowledge. I will look forward to having him here in a month from now. Over the course of June, he will work closely with Dennis and the existing team to ensure smooth transfer of responsibilities. So many thanks for listening in and goodbye for today. Bye-bye.

[Operator]

Thank you. This does conclude the HUGO BOSS First Quarter Results 2018 Conference Call. We thank you for your participation today. You may now disconnect your line.