Hugo Boss AG

XETRA:BOSS

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the HUGO BOSS First Quarter 2022 Results Conference Call. [Operator Instructions]

May I now hand you over to Christian Stohr, who will lead you through this conference. Please go ahead.

[Christian Stoehr, executive]

Yes. Thank you very much, and good afternoon, ladies and gentlemen. Welcome to our first quarter 2022 financial results presentation. Today's conference call will be hosted by Yves Muller, CFO of HUGO BOSS.

Before we get started, allow me to reiterate that all revenue-related growth rates will be discussed on a currency-adjusted basis, unless otherwise specified. [Operator Instructions]

So without any further ado, let's get started. And over to you, Yves.

[Yves Müller, executive]

Thank you very much, Christian. And also from my side, a warm welcome to all of you. Thank you very much for your interest.

During the next 25 minutes, I will primarily focus on 2 overarching topics. Firstly, I will elaborate in detail on our strong operational and financial performance in the first quarter, spurred by our highly successful branding refresh initiated at the end of January. And secondly, I will guide you through our top and bottom line expectations for the remainder of the year, also referencing the current geopolitical and the macroeconomic uncertainties.

But first and before talking about our business performance, allow me to emphasize once again that at HUGO BOSS, we remain deeply concerned by the dramatic humanitarian crisis unfolding in our European neighborhood. The suffering of the people in Ukraine cannot be put into words, and our deepest empathy and thoughts are with all of those affected by the war. To help the people in need, we are supporting the German Red Cross and other organizations with financial aid and in-kind donations. Looking ahead, we will continue to monitor the situation closely and evaluate the developments accordingly.

Now from our press release this morning, you have already noticed that we can look back on a highly successful start to fiscal year 2022. Following a steady acceleration in top line growth last year, I'm particularly pleased to report that this trend has also continued in the first quarter.

Compared to pre-pandemic levels, sales were up a strong 17%, representing a further acceleration of 5 percentage points as compared to the final quarter of 2021. From a year-on-year perspective, group sales even increased 52% to EUR 772 million, marking the strongest first quarter sales in our company's history.

While momentum was broad-based in nature, our 2 largest regions, Europe and the Americas, have shown particular strength in Q1, recording double-digit sales improvement versus pre-pandemic levels. On top of this, the focus and relentless execution of CLAIM 5 provided an additional tailwind during the first quarter. In particular, our bulk branding refresh resonates extremely well with our consumers worldwide, thereby bearing brand momentum around the globe.

Now as part of our full year 2021 results released back in March, Daniel and I already provided you with a comprehensive deep dive on our branding refresh. Hence, without going into too much detail once again, let me briefly recap on some key highlights around this truly groundbreaking and first iconic move to ultimately becoming a top 100 global brand.

Above all, our brand star-studded global campaigns, Be Your Own BOSS and How Do You HUGO, drove brand momentum and attracted new and younger generations worldwide. Thanks to our international all-star cast, including BOSS brand ambassadors, Alicia Schmidt, Matteo Berrettini and Khaby Lame, and the activation of more than 200 diverse talents from all over the world, our campaigns created an overwhelming social buzz. In only 3 months' time, our various marketing initiatives has resulted into a record 24 billion impressions and almost EUR 1 billion engagement on social media, something our company has not experienced before.

Most importantly, with our marketing initiatives strongly focused on digital, we have seen momentum on social media picking up strongly. In the first quarter, BOSS has been the fastest-growing brand on Instagram in terms of follower development among key premium apparel peers. In 3 months period alone, our brand attracted around 500,000 new followers, growing its fan base by 5% to almost 10 million followers. On top of that, in Q1, engagement rates for BOSS more than doubled to a strong 16%, making BOSS the #1 brand in terms of overall engagement among its core peer group.

Also on YouTube, we have set new benchmarks in terms of reach. With more than 32 million views, our Dubai fashion event for BOSS created tremendous buzz and quickly achieved record-breaking results on YouTube. This is another proof positive of brands growing relevance on social media.

Also for HUGO, our consistent focus on social media, on TikTok in particular, has yielded strong results over the most recent weeks and months. Recently in April, HUGO hosted a series of branded events in Palm Springs getting the HUGO House, a creative hub for TikTokers and talents on the radar of millions of Coachella festival goers and followers from all over the world. In less than 2 weeks, HUGO achieved more than 1.3 billion impressions on social media, a total of 200 million views on TikTok and a strong organic engagement rate of 26% on Instagram.

Fueled by these successes, both our brand recorded significant double-digit sales improvement year-on-year. Revenues grew 53% for BOSS Menswear and 41% for BOSS Womenswear, spurred by growth across all wearing occasions and clearly emphasizing our ambition to establish BOSS as a true 24/7 lifestyle brand. On a 3-year stack basis, sales for BOSS Menswear exceeded pre-pandemic levels by 17% while remaining on par with 2019 levels for BOSS Womenswear.

HUGO also posted very robust growth and continues its strong double-digit growth trajectory, thereby gaining further market share across geographies. Revenues increased 52% year-on-year, translating into strong growth of 26% compared to pre-pandemic levels. Importantly, sales for the brand's casualwear offering more than doubled as compared to 2019, reflecting HUGO's strategic focus on modern and commercial styles to ultimately establish itself at the first touch point among younger consumers, in particular Gen Z.

This brings me to our regions, with both Europe and the Americas having once again recorded particularly strong performances in the first quarter. In Europe, revenues increased 69% on the prior year level, reflecting ongoing robust local demand as well as the successful execution of important strategic initiatives along CLAIM 5. At the same time, the prior year period was marked by long-lasting temporary store closures as reflected by an average store closure rate in Europe of around 50% in the first quarter of 2021.

On a 3-year stack basis, revenues in Europe consequently increased by 21%, representing a strong acceleration of 10 percentage points as compared to the final quarter of '21. Great Britain and France performed particularly well with 3-year stack growth of 32% and 13%, respectively, while sales in Germany came in broadly in line with 2019 levels.

Also in Eastern Europe, momentum remained robust in Q1 as reflected by a high double-digit growth versus 2019 levels despite the war in Ukraine and our decision to suspend our business activities in Russia early March. Allow me to point out that beyond these 2 markets, we have not seen any negative implications from the war on our European business as of today.

Moving over to the Americas, where sales up 56% as compared to the prior year period. As a result, sales grew 17% versus 2019 levels with all of the region's markets recording strong improvement versus pre-pandemic level. In the important U.S. market, where both BOSS and HUGO continued to successfully foster their 24/7 brand image, revenues increased 9% versus 2019. This in turn means that our comprehensive initiatives to substantially improve our overall product assortment at this point of sale has clearly started to pay off. Our brand's casual-inspired collections also include the third addition of our BOSS Meet NBA collection resonate extremely well with the U.S. consumer, thus putting us in a strong position to further push ahead with our self-managed turnaround and accelerate growth in the U.S. market in the years to come.

And while trends were similar in Canada with revenues up 10% versus 2019, our BOSS business in Latin America continued its particularly strong momentum in Q1 as reflected by high double-digit sales growth compared to 2019 levels driven by both Brazil and Mexico.

Finally, on Asia Pacific where we also recorded a promising start to the year as reflected by double-digit sales improvement across key markets, including Mainland China in the run-up to Chinese New Year. Towards the end of the quarter, however, renewed COVID-19-related restrictions started to weigh more meaningfully on consumer sentiment and on store traffic in key provinces, first and foremost, in Shanghai.

Towards the end of March, around 1/3 of our store network in Mainland China have been affected by either temporary closures or reduced opening hours, resulting in significantly lower traffic. Consequently, for the quarter as a whole, around 10% of our point of sale in Mainland China were impacted by the lockdown, leading to first quarter sales in Mainland China being 13% below the prior year period. This translate into growth of 12% versus 2019 level.

To conclude on Asia Pacific, while business in Hong Kong and Macau continued to be impacted by lower tourism strolls, markets such as Japan and Australia made further progress along their overall business recovery, recording high single-digit and low double-digit growth versus 2019 levels. Overall, revenues in Asia Pacific came in 3% above the prior year level and only 1% below that of 2019.

Let's conclude on the top line with a brief review of the performance by channel, with both digital and brick-and-mortar contributing to growth in the first quarter. Starting with our important digital business, we successfully continued its double-digit growth trajectory in Q1. Despite being up against a particularly strong comparison base from the prior year period sales, sales increased 22% with double-digit improvements across all regions in all digital touch points, including both hugoboss.com as well as partner websites. This development was supported by the relaunch of hugoboss.com successfully implemented at the end of January as well as the tremendous digital buzz our 2 brands created in the wake of the branding refresh, leading to higher traffic, an increase in average order value as well as a higher share of full-price sales. Compared to 2019, our digital business even more than doubled with revenues up 145%, leading once again to a digital sales share of around 20%.

Moving over to our brick-and-mortar retail business, which recorded strong double-digit sales improvement in Q1 with revenues up 76% year-on-year. While this development was also supported by a fairly easy comparison base from the prior year period, considering that around 25% of our global store network was closed on average during the first quarter of 2021, it was in particular the successful execution of CLAIM 5 as well as robust consumer sentiment across key regions that drove overall momentum. On a 3-year stack basis, revenues in brick-and-mortar retail were up 5%, led by the Americas recording double-digit sales improvement versus 2019 across all major markets as well as mid-single-digit growth in Europe.

Finally, sales in brick-and-mortar wholesale grew 44% compared to the prior year period, marking the channel's return to pre-pandemic levels with an increase of 2% as compared to 2019. This development mainly reflects robust demand of wholesale partners for the Spring/Summer 2022 collections, fully incorporating the branding refresh. At the same time, the delivery shift effects from the first quarter into the second quarter weighed on wholesale revenue growth by around 10 percentage points or EUR 25 million.

Now with this, ladies and gentlemen, let's move on to the main P&L items starting with our gross margin, which totaled 61.6% in the first quarter, representing an increase of 120 basis points year-on-year. This development mainly reflects a generally lower markdown activity and thus a higher share of full-price sales in both our digital and brick-and-mortar businesses, which more than compensated for the persistently high level of global freight and transportation costs. Besides that, in Q1, we also recorded slight positive effects from both channel mix as well as inventory valuation, largely offset by negative currency effects.

Moving over to operating expenses. Fully in line with our strategic CLAIM Boost Brands aimed at driving brand relevance, we strongly stepped up our marketing investments in the first quarter. Consequently, as compared to both 2019 and 2021, marketing investments effectively doubled to EUR 80 million. Also in percentage of sales, marketing investments grew substantially to a level of 10.4 percentage points, which is somewhat above our target range of 7% to 8% as set out in CLAIM 5. Unsurprisingly, this development is predominantly related to our comprehensive marketing campaign as part of our global branding refresh initiated during the first quarter.

At the same time, we also continued to invest in the further digitization of our business model, representing another key lever of our journey towards 2025. In the first quarter, total digital investments were up 43% or EUR 50 million year-on-year with the relaunch of hugoboss.com and our recently established digital campus and portal being 2 prime examples of our digital investments in Q1.

Overall, operating expenses increased 45%. Besides the significant step-up in brand and digital investments, this also reflects a normalization in rental and payroll expenses given long-lasting temporary store closures in the prior year period. As a percentage of sales, however, operating expenses decreased 380 basis points to a level of 56.5%. And while selling and distribution expenses increased 49% in the reporting period, administration expenses came in 34% above the prior year level driven by higher payroll and digital investments.

Now in light of the strong top line performance, the increase in gross margin as well as operating leverage generated in the first quarter, we were able to realize significant bottom line improvement as reflected by a EBIT of EUR 40 million in Q1. This is all the more noteworthy considering our ongoing commitment to significantly invest in our business to successfully deliver against our CLAIM 5 targets. And to conclude on the P&L, net income attributable to shareholders totaled EUR 24 million in the first quarter.

Let's now turn quickly to the balance sheet, starting with trade net working capital, which as a percentage of sales saw a significant decline year-on-year. At the level of 15.0%, trade net working capital came in below our target corridor for 2022, which is between 18% and 19%. The overall improvement in trade net working capital was largely driven by a 3% decline in inventories attributable to the accelerated sales growth in the first quarter as well as a strong increase in trade payables, reflecting a higher utilization of our supplier financing program.

Now in terms of capital expenditure, investments in the first quarter totaled EUR 18 million, up 13% on the prior year. As a percentage of sales, however, CapEx amounted to only 2.4% and was thus well below our targeted range as part of CLAIM 5. As we will push ahead with our store optimization initiatives and the rollout of our new store concept for BOSS and HUGO, let me point out, however, that we anticipate a more significant step-up in CapEx during the remainder of the year.

Overall, we remain fully committed to implementing our new store concepts in at least 100 points of sale globally in fiscal year 2022. As of today, customers can already experience the new look and feel in around 30 of our own stores and shops. In this context, the highly anticipated opening of our new anchor store in London's Oxford Street is just a few weeks of time will mark a particularly important milestone and further elevating our customer experience in brick-and-mortar retail.

This brings me to free cash flow. Driven by the strong bottom line performance as well as further improvements in trade net working capital, free cash flow turned positive quarter-on-quarter amounting to EUR 1 million and thus effectively on par with 2019 levels.

Finally, the strong free cash flow generation over the last 12 months as well as the associated lower utilization of credit line resulted in net financial position totaling plus EUR 120 million when excluding lease liabilities in the context of IFRS 16. Consequently, HUGO BOSS continues to be effectively cash-rich at the end of Q1.

Ladies and gentlemen, this concludes my remarks on our first quarter operational financial performance. Let's now move over to our expectations for the remainder of the year.

As highlighted back in March, fiscal year 2022 represents the first full year along our journey towards our 2025 ambition. As a result, all our initiatives in the current year, either from a brand product or operational perspective, have one common goal in mind: fostering the strong top line momentum gained over previous quarter. With our successful start into 2022, we have already reached an important milestone and laid the foundation for another successful year. We, therefore, confirm our top line and bottom line outlook for the current fiscal year as issued on March 10.

This being said, we must not forget that the overall market environment remains quite volatile. Our industry is currently facing disruption from several factors, which all for themselves pose a risk to consumer sentiment from the terrible war in Ukraine, the ongoing COVID-19 restriction in China to persisting macroeconomic headwinds, including high levels of global freight costs as well as the overall cost inflation.

Regarding the latter, we have decided to increase our prices globally, starting with the upcoming Fall/Winter 2022 season in the second half of the year. Overall, we are targeting a mid- to high single-digit price increase to be implemented over the next 2 seasons.

In light of our accelerated brand momentum and given our superior price value proposition in the marketplace, we have every confidence that these price adjustments will be well accepted by our customers. Consequently, regarding our top line, we continue to expect revenues in 2022 to increase by between 10% to 15% to a new record level of between EUR 3.1 billion and EUR 3.2 billion. Importantly, growth will be broad-based in nature with all brands, all channels and key regions set to contribute to our growth target. Our confidence is underpinned by the persisting strong brand momentum generated by BOSS and HUGO in the wake of a successful branding refresh.

In particular, we remain optimistic that the robust momentum in Europe and the Americas will continue with the month of April having further strengthened our confidence in this regard, and not to forget, our strong order book for the upcoming Fall/Winter 2022 season, which should provide additional tailwinds for the second half of the year. Together, all these developments should enable us to more than offset the ongoing pandemic-related implications in Mainland China.

Based on the anticipated strong top line growth and a more or less stable gross margin development year-on-year, we continue to forecast robust bottom line improvements in fiscal year 2022 with EBIT expected to increase within a range of 10% to 25% to an amount of between EUR 250 million and EUR 285 million. This holds true despite the significant step up in product, brand and digital investments, which are a firm element of our CLAIM 5 strategy and which will continue to lead the way throughout the remainder of 2022.

Now like I already mentioned and as you are all aware of, the environment continues to be characterized by a high degree of geopolitical and macroeconomic uncertainty. And by nature of things, it is extremely difficult to predict precisely how these uncertainties will further evolve and ultimately weigh in our business in 2022. We will, therefore, continue to very closely monitor these developments in the coming weeks and months. We also continue to act decisively and determined when it comes to implementing measures to counteract their impact on our business.

Thanks to our accelerated top line momentum and our strong position in the market, we have every confidence that we will be able to cope with these macroeconomic uncertainties. At the same time, we will continue to push ahead with our various strategic initiatives to ensure we make further progress along our CLAIM 5 strategy in 2022 and beyond.

Now before opening the floor to your questions, let me briefly recap on our key highlights for the first quarter. First of all, we have to make a true -- we made a true kickstart to fiscal year 2022 with record first quarter sales that exceeded pre-pandemic levels by a strong 17%. This represents a further sequential improvement as compared to the final quarter of 2021, driven by broad-based growth across both our brands, all channels as well as all key regions.

Secondly, around the growth, growth was spurred by bold branding refresh that was successfully implemented during the first quarter from new products to record-breaking marketing campaigns, up to exciting events, inspiring fans worldwide for BOSS and HUGO. Our brands are enjoying tremendous momentum while still having so much more in the pipeline for the coming months and quarters.

Finally, in light of our successful start to 2022 and underpinned by very robust brand momentum around the globe, we confirm our top and bottom line outlook for the current fiscal year, notwithstanding the fact that the environment we operate in continues to face some high levels of geopolitical and macroeconomic uncertainties.

Ladies and gentlemen, this concludes my prepared remarks for today, and I'm now happy to take your questions.

[Operator]

[Operator Instructions] And the first question comes from Elena Mariani, Morgan Stanley.

[Elena Mariani, analyst]

Congratulations on the results achieved in the first quarter. I'm going to stick to two questions as requested. My first one is on wholesale. So did I understand correctly that the timing of shipments have negatively affected Q1? So growth in wholesale versus '19 would have been around 12% adjusting for this timing? So what does that mean for second quarter? Should we factor in an extra EUR 25 million of sales?

And also still related to this question, given that you have a little bit of forward-looking information on wholesale and you have a view on your order book, could you help us perhaps understand a little bit what to expect for the coming 2 quarters in terms of wholesale growth? Is your order book for Fall/Winter even stronger than Spring/Summer? And then could you quantify a little bit this expansion in wholesale? Is it about gaining new customers, selling more with existing accounts and so having gained extra shelf space? So any information on this given that now the brand refresh has been fully implemented would be very helpful.

And then my second question is on your generic top line guidance for fiscal year '22. So Q1 was stronger than expected, for sure, also on the retail front, where maybe a few months ago, you didn't really have full visibility. But you're keeping the guidance unchanged. So that would imply a slightly more bearish outlook for the rest of the year, which is understandable given the macro picture. But is there something that you are seeing in April, early May trends that make you believe that versus 2019, sales could slow down meaningfully? Have you noticed anything in terms of consumer sentiment, excluding China, that has changed over the past few weeks? So -- or should we assume instead that the growth rate versus '19 into the second quarter is pretty much similar to the high teens that you have seen in Q1?

[Yves Müller, executive]

Yes. Thank you very much, Elena. That was -- there were a lot of questions, but thank you very much for proposing them. So first of all, I think it's worth mentioning, so for wholesale, that in terms of how we disclose the wholesale business that we actually differentiate between brick-and-mortar wholesale, and that other wholesale is included in digital. So if you would combine them in the first quarter, the digital piece in brick-and-mortar, they would come up to closely an increase of 20% in terms of growth. I think this is important to notice.

So taking this growth of 20% from both parts, wholesale, brick-and-mortar and digital, we said and disclosed today that there is a kind of timing shift of 10 percentage points, which is equivalent to 25 that they will occur in the second quarter unless there will be deliver shifts from Q2 to Q3. But theoretically, you're right.

And to put further color actually on the order book, so we disclosed to the capital market that Spring/Summer was plus 30% versus the pre-pandemic levels. We clearly disclosed that for the Fall/Winter, it was even plus 40%. So we see as well on the wholesale front a kind of acceleration in terms of preorder values, especially for the second half of the year. And this is actually coming with some additional shelf space coming out of 2 directions. One is fairly good sell-out ratios with the wholesale partners that we are seeing. So actually, they are increasing their doors on a kind of, I would say, like-for-like basis. And on top of this, we generate actually more point of sales by introducing our top line, BOSS Orange, BOSS Green and BOSS Camo. So these have 2 effects, and I feel very -- actually, very confident with the wholesale book so far.

So coming back to your questions regarding the top line guidance, I think we really had have -- and I just want to underline this because, as you might have noticed, we really heavily invested into our brand and the brand momentum. And I'm really happy to say that the investments that we did in the marketing that they really translated into a very good top line performance. So I'm really very happy how we could -- how we invested, and we really got a kind of return on our investment in terms of top line recruitment. And actually, all the data that we have from a digital perspective, social media, brand momentum, they are on the green line and very positive, and I'm very happy about this.

Further things to note is, if I talk about the April numbers and I conclude here the global development, and I'm very much pointing out always the kind of acceleration of the business and I really like to repeat this because we see this kind of acceleration of our business so far. So if I compare my numbers versus the 2019 numbers on the pre-pandemic levels, Q3 was plus 7, Q4 was plus 12 and Q1 was now plus 17. So you really can see a kind of acceleration of the brand momentum versus pre-pandemic levels, and this makes the whole management team very confident.

And I can confirm that we continued this momentum in April on a global scale, even including China. So actually, I'm very happy about the ongoing strong performance, especially in Europe and especially in the Americas, so both regions, which for us accounts for like 80% to 85% of net sales and have a very underlying performance so far.

So if I confirm the outlook as of today, I mean you have to take in mind that after the 10th of March, it's just 7 weeks down the road until today. I think we have had a very good, let's call it, first quarter or first 4 months. I'm very happy about the development. On the other side, as you know, I mean the uncertainties are there. You might view this as a conservative outlook, but I want to just underline this that we stick to our guidance as disclosed today. And you might view this as being conservative. But clearly, I just want to point out, there are uncertainties still. It's -- I mean, so far, we don't see it in the numbers, but I'm more on the cautious. I'm more on the conservative side.

[Elena Mariani, analyst]

Understood. Just to clarify to make sure I understood correctly. So essentially, in Q1, the overall wholesale business was up 20%. Including the effect of the timing of shipments, it would have been plus 30%, more or less. And then your order book for Spring/Summer was up 30% and for Fall/Winter was up 40%. Is that right?

[Yves Müller, executive]

That's right.

[Elena Mariani, analyst]

Okay. Versus '19, okay. And then final clarification on April. So you're still up double digits versus 2019 so far.

[Yves Müller, executive]

What should I say?

[Christian Stoehr, executive]

I mean just to be clear, Elena, Yves just repeated that the momentum in April continued from the first quarter. And as Yves also said, Q1 was up 17%. So it's only fair to assume that this was double digit up in April, too. Yes? Thanks very much.

[Operator]

And the next question comes from Jurgen Kolb, Kepler Cheuvreux.

[Jurgen Kolb, analyst]

Indeed, impressive growth in Q1. Two questions from my side. First of all, what have you learned about your customer? Who is nowadays the customer? What have you learned now over, obviously, some quarters with the new collections and new ideas behind it? What has shifted? I guess you can probably talk in more detail about the digital business because they have more transparency. But in general, some comments would be helpful as to what the shift in collection has been.

And secondly, a little bit about the gross profit margin, up 120 basis points. Now when you look at the individual drivers of that, maybe you can give us a little bit of an indication as to how that's going to develop in the coming quarters, i.e. specifically on the sourcing and the freight cost. Is that something that further rise or even goes up stronger in the coming quarters? Or is that a level that we could more or less see as a continuous cost level going forward?

[Yves Müller, executive]

Yes. Jurgen, thank you very much for your questions. So first I'll start with the second one regarding gross margin. So first of all, I think the freight cost, it's a clear headwind for us for the next quarters to come. This is the reason why we are a little bit conservative here as well that we are saying the gross margin overall will be stable in comparison to '21.

I think we had a high quality sales development in Q1 because we really could reduce the markdowns. We had higher full-price sales. The new collection are resonating well with the consumers. So this all drives the positive margin. And actually, we have to decide this on a very short-term basis. How we are doing so far? We are doing very good with these. And I think if we -- if the performance remains -- but we have to -- this would be a first kind of positive surprise. But let's -- we only have 3 weeks -- 3 months of the year in our books. We still have to observe this. I think it could be a positive upside if the good full-price sales will remain and that we can operate with less discounts in comparison last year in order to compensate this ongoing freight cost increase.

We don't see this, Jurgen, that the freight costs will go down for the next quarters to come. They will remain high. You have seen the pictures of Shanghai, of the harbor and all these things. The Ukraine war is not helping. So the freight cost will remain high. And we try to compensate this with the -- overcompensate this with best markdowns.

So with the customers, what we clearly see, that was your first question, is that the whole customer base gets younger, that we're really going towards a 24/7 lifestyle brands. They are buying into sneakers. They are buying into denim. They are buying to jerseys. So the product categories, they are really going through the roof. We have even some sold-out situations with some of our collections even in the United States. So we are very happy, and we can see that our customer base creates new cohorts under the younger consumers. So we focus with the BOSS brand clearly towards the millennials and with HUGO towards the Gen Zs. And we can clearly see that the average age goes down and that we generate new younger consumers for both brands, BOSS and HUGO. And with this, we are very happy.

I mean on the digital space, of course, we try to retarget them. Once they are buying, we have a certain visibility from our CRM base. You know that 2/3 of our customers are known from the stationary business and digital business. So we really try to reapproach them. And actually, the results are very strong and making -- to turn those first consumers into fans of our brands.

[Operator]

And the next question comes from Michael Kuhn, Deutsche Bank.

[Michael Kuhn, analyst]

Two also from my side. Firstly, on OpEx and the specialty marketing spending. As expected, quite a big increase in the first quarter, maybe a bit bigger than anticipated, marketing spending at EUR 80 million. Could you give us some indications on phasing of OpEx, especially marketing over the upcoming quarters? Will there be more kind of another big bang marketing quarter? Or will it be more stable over the remainder of the year both in absolute terms and also in terms of percentage of sales?

And then secondly, on the gross margin again, you mentioned that pretty significant improvement driven by lower markdowns. I think comps will get a bit tougher over the remainder of the year. So do you still expect a similarly big improvement from that factor? Or will it come down?

And then in that context, the price increases. I think you've mentioned recently that keeping your prices stable also helped you gaining space from competition. You're now also moving up. Do you see similar price increases among your competitors? Do you keep that competitive advantage? Or what general situation do you experience pricing-wise in the marketplace right now?

[Yves Müller, executive]

Yes, Michael, thank you very much for your questions. So perhaps I start with the first question regarding the marketing investments. I think it's worth mentioning, first of all, that the marketing spendings that we did of EUR 80 million that, that was a big push of the branding refresh remain -- with the branding campaigns for both brands, BOSS and HUGO; for both genders, men and women. So it was a broad-based, very big marketing campaign and was a deliberate spend, discretionary spending. I really want to point out that these are kind of reliable costs. There are no long-term commitments behind these costs, discretionary spendings in order to fuel the growth. And I'm -- like I said in the beginning of the Q&A session, I'm really happy how the investments really translated into top line growth.

So this was a big push in the first quarter. We disclosed that in terms of even the higher-than-expected net sales. It was a 10.4 marketing spending. We always said on the CLAIM 5 strategy that we want to step up our marketing expenditures, going from 6% to 7% to 8%, especially in the first year. We are more like at the end of this, so going to 8%. But having 10% in Q1, we still want to be in this kind of range, between 7% and 8% in the first year, perhaps at the end of the year at around 8 percentage points. We will stick to this range. And this will mean actually that there will be less spendings over the next quarters. Still, you can imagine that we will create a lot of buzz around this, but it will level in of this around 8% of our net sales at the end of the year.

Regarding gross margin, I just want to repeat, it might look conservative that we confirmed somehow our guidance that the gross margin remained stable. So like I said, we had a very strong gross margin in the first quarter. And let's have a conservative view on this, how it will develop because we know that there are headwinds coming from freight cost and still let us manage the next quarters very wisely when the -- I mean, if the brand momentum continues, we can increase our full-price sales. Perhaps we have some positive news there to come, but it's still too early to call from my side.

And regarding price increases, yes, I think the feedback that we are getting from our customers is that we have a very good price value proposition even after all price increases. Like we said, we increased them mid- to high single digit. And our competitors have at least the same price increases. So I can confirm that the price advantage that we might have in view of the customers still remain.

[Operator]

And next question comes from Thomas Chauvet, Citi.

[Thomas Chauvet, analyst]

Two questions and a follow-up, please. The first question on the store-related OpEx at the Capital Markets Day last August, you gave a bridge to the 12% EBIT margin. This included 700 bps reduction in store-related costs as a percentage of sales, I think, towards 20% because of the store closures referred to on sizing. Can you elaborate on how this plan is shaping up? You alluded to it a little bit earlier even and whether you're starting to see some of these early benefits. And have you done any closure? Can you provide an update on the closure of unprofitable stores? I think there were 100 targeted?

And secondly, on your gross margin again, I understand you're confirming flat gross margin for the year. But if later in the year, full-price sales channel mix were continuing to more than affect fleet cost and other cost inflation as you saw in the first quarter, would you consider to basically reinvest all of these gains into OpEx, particularly in marketing, as you did in the first quarter?

And then just a follow-up on the April trading question. You said April momentum continues. But with China probably down, I would guess, at least 30% now, this is minus 13% in the first quarter given the store closures. So that would suggest U.S. and Europe or maybe both have accelerated versus Q1 on a 3-year stack basis. Is this a fair assumption to U.S., Europe accelerating and China, obviously, down in greater down double digit now compared to Q1?

[Yves Müller, executive]

So Thomas, thank you very much for your questions and for your interest. So regarding your last questions regarding the momentum in Europe and Americas, I can confirm this. So the numbers that I actually said is that we -- that the strong momentum continued out of the first quarter into April is for the global number. So this includes Mainland China. And I can confirm that, yes, Europe -- that the development in Europe and Americas was very strong.

Regarding gross margin, we haven't decided yet whether we might invest this. So we have to see this along the year. So it's too early to call it out. And so what we're going to do with the potentially gains that we might achieve in gross margin, so we will see this because we still have a plan regarding OpEx. And you know that we want to step up the investments that we are doing and we -- the execution of CLAIM 5. I mean all the investments of the product, brand and digital, they are all included in the budget. They are all included in the guidance that we gave to you. So we will -- we feel overall comfortable. And if you know, you might see gross margin, we haven't decided that yet.

And regarding store-related -- the store development, like I'm always saying, we have this 450 freestanding stores. We return -- we look at them, I'm always saying 80 to 100 where we optimize every year. So if you just take the first quarter, I mean we opened 5 and we closed 8. So this continues. And actually, regarding the optimization of our retail portfolio, we are on a good way. And we generate efficiencies alongside our execution of CLAIM 5, and this works out nicely.

[Thomas Chauvet, analyst]

So store-related costs as a percentage of sales came down year-on-year in the first quarter, I suppose.

[Yves Müller, executive]

Once again, I didn't get -- received the questions.

[Thomas Chauvet, analyst]

Store-related costs as a percentage of sales came down year-on-year in the first quarter.

[Yves Müller, executive]

Yes, they went down. Yes, yes.

[Thomas Chauvet, analyst]

Okay. And just on your 50 store openings in China that you have planned. Obviously, are you now considering postponing these? And does that capture your CapEx guidance?

[Yves Müller, executive]

Yes, it's all captured. I mean we still continue to find new locations because we want to grow 10 to 15 POS. That, we are looking for because, as you know, we are in the Chinese market. We -- our exposure is less than 10% overall in terms of group net sales. So we are much less exposed to the Chinese market. So we still think that we can grow in the Chinese market. And yes, there are now COVID-related restrictions. But clearly, we follow our strategy to further open more stores. And this has nothing to do, I mean, in terms of talking to landlords and signing new good locations for our both brands, BOSS and HUGO.

[Operator]

And the next question comes from Antoine Belge, BNP Paribas.

[Antoine Belge, analyst]

It's Antoine Belge, BNP Paribas Exane. Two questions. First of all, coming back on this communication campaign. I think you surprised the industry with the quality of the people you recruited for your campaigns. Can you elaborate a bit in terms of the impact, not so much on the numbers, but more on the type of demographic groups or age and gender that it triggered in terms of consumer?

And my second question relates -- is a bit broad. But if you could talk a bit about womenswear and HUGO and how -- I mean they are seeing here more highlighting the specific dynamics of these 2 brand or part of your business.

[Christian Stoehr, executive]

Sorry, Antoine, this is Christian speaking. I just jump in very quickly on the first one because I think that was a question that was very similar to the one asked by Jurgen before. And I guess, as Yves has elaborated, we -- definitely, we are seeing momentum catching up very strongly on social media across the key channels that we are focusing on. You know that for BOSS, we have identified Instagram as our leading channel. And by nature, you can assume that we're now really targeting a much younger cohort, the millennials, which is our core target group for the BOSS brand. And HUGO is seeing a nice balance and a nice mix between male and female consumers, who actually become fans of the brand. And I think it's a nice achievement that BOSS has become the fastest-growing brand on Instagram in Q1 and outperforming our peer group and also recording the strongest engagement rate.

So again, in terms of demographics, the millennials, it's a nice balance between male and female. I guess this also is a direct consequence of the fact that our cast of brand ambassadors that we've chosen, included a number of high profile female celebrities and influencers. Yves mentioned Alicia Schmidt, but also Hailey Bieber, just to add one more name on that.

And when you think about HUGO, I mean, obviously, even targeting a younger generation than the millennials, actually, it's the Gen Z. Also here with the Coachella Festival, we kicked off sort of the festival season, and the numbers were really strong, outperforming our own expectations. Engagement rate of 26% was much better than we had hoped for. And again, this is a thing that is a truly dual-gender brand. And as a consequence, also here, we're attracting, yes, Gen Zs, but across all genders. And so just adding or repeating to some extent what Yves has already said.

[Yves Müller, executive]

And Antoine, perhaps regarding womenswear in HUGO, if you look at the growth rates and I compare this to the growth rate versus 2019, if you take the first quarter, so once again, by ranking, so HUGO was 26; BOSS Menswear, plus 17; and womenswear, on par. I think you see here a little bit that, especially the direction that we are taking in terms of lifestyle streetwear, HUGO is resonating well with the highest growth rate in terms of 26 with a lot of categories really moving forward, especially Jersey, especially sneakers with excellent growth rates. So it resonates really well. And we are very much advanced, and this will be -- further fuel the growth by our collaboration that we take on denim with the collaboration with Replay that we're going to do in the summertime. So much more to come to fuel the growth on the HUGO side.

On womenswear, you could argue we are only on par versus 2019. And there are some truth in it because our new -- Kristina Szasz, she started in September. So the first collection where she had some influence was that was sold in the showroom in January, February for the Fall/Winter collection. And so we see actually the first positive signs in sell-in, in terms of preorders because those orders were up like 24% versus pre-COVID levels in terms of wholesale orders for Fall/Winter. So I think the womenswear piece, we are more in the earlier stage of our, let's say, momentum that we generate. But I think the first early indicators give me some positive sign. But clearly, due to argue this on a broad-based basis is clearly too early to come out.

[Operator]

And the next question comes from Manjari Dhar, Royal Bank of Canada.

[Manjari Dhar, analyst]

Just on the new store concept, can you give a bit more color on the performance that you're seeing from these versus existing concepts?

And secondly, how are you thinking about Asia ex China? Is this likely to be more of a focus moving forward?

[Yves Müller, executive]

So thank you very much, Manjari, for your questions. So first of all, if you -- the second question, ex China, the performance is very strong, is up now almost double digit versus 2019 levels. If you take countries like Japan, Australia and even Southeast Asia are coming back strongly. So on the Asian piece, we see a good development after, let's call it, long-lasting lockdowns.

And regarding the new store concept, it's really very, very early to call it out. We have just rebranded or opened 25 stores from the freestanding store piece, so too early. So I think the feedback of the consumers is, I think, it's very good, very positive from this side. But to give you a serious number, it's too early because these are -- the vast majority of remodeled stores, we don't have a kind of like-for-like basis. These are more like new locations where you have a kind of qualitative feedback from the customers and you're not on a like-for-like basis. So it's too early. But we will highlight this in one of our next sessions.

[Operator]

And the next question comes from Volker Bosse, Baader Bank.

[Volker Bosse, analyst]

Volker Bosse, Baader Bank. Congratulations on the great Q4, Q1 results. Two questions. First is on China. I would like to dig a bit deeper here. What is the background of the sales decline? How much is related to the COVID lockdown impact, so to say? And how is the situation with the consumer boycott? Are your influencers able or allowed to promote your products? So how much comes from COVID? How much from the potential consumer boycott?

And the second question is on collaboration. Successfully, the boost that your Brands needs, especially in younger customers as you pointed out. So perhaps here, a sneak preview on what to expect in regards to collaborations in the rest of the year, especially in the second half to come.

[Yves Müller, executive]

Yes, Volker. So perhaps -- thank you very much for your questions. So perhaps relating to your first question, I think it's very important to mention that the performance that we currently experience or that we have seen in the first 4 months, we enjoyed a very good performance before the lockdown. So it's nothing at all consumer boycott-related. Even on the contrary, we are signing new Chinese influencers as well on our side. So this has nothing to do with consumer boycott. This -- so the current performance is just related to any COVID restrictions because stores are simply closed or have reduced opening all hours or there are some orders by the local government saying you should not leave your apartment or your house. So traffic is down in these kind of regions, and that's the only reason for this performance. And we know once this is over, net sales might pick up very quickly.

So for the second question, collaborations, I think we still want to positively surprise you. So we have disclosed on the HUGO piece because we very often talk about BOSS. I mean, there, you have the very successful commercial collaborations with [indiscernible], with Anthony Joshua, with Matteo Berrettini that are about to come. So very good collaboration to continue, and there is more to come in the second half of the year. And with HUGO, I think the biggest thing that I can announce is with Replay that we have and much more in the pipeline to come to generate or to keep the brand momentum high.

[Operator]

And the next question comes from Jörg Philipp Frey, Warburg Research.

[Joerg Frey, analyst]

Well, first question actually on the implementation of the price increase, regarding particularly your order book -- your strong wholesale order book for Fall/Winter. Are you able to raise pricing for these orders as well? Or if not, will you increase your own retail prices for these goods, which are already in the wholesale order process, nevertheless, making your collection actually much more attractive even for your wholesalers? Just some ideas on that side.

And then just generally on your inventory position, which is obviously very tight. Are you still happy with the current inventory level? Or actually -- are you actually already concerned regarding the replenishment speed and increase of food and transit and things like that?

[Yves Müller, executive]

Yes. So perhaps regarding your first question, I think it's a very relevant question that you're raising regarding the price increases. So what we're doing is we are increasing the prices from a retail perspective. This is what we're going to do. And the wholesale partners, they have based their orders on lower prices. They are free to decide what they will do if they want to increase prices, yes or no. So they are free to decide. And due to antitrust law, we cannot influence this. But of course, they are aware of the fact that we are increasing for retail. And there might be some deviations, but they are free to decide.

And regarding the inventory position, I can clearly say, yes, we have continuously reduced our inventory position. It has further strengthened, even given the size and the growing piece of our business. We try to remain -- the inventory position remains stable or it's even decreasing. I can really -- I can clearly say that the quality of our inventory has clearly improved, so much less aged merchandise, much more fresher merchandise. So we are going in the right direction. But if you ask me, I see still further ideas to somehow optimize our inventory position in order to maximize our trade net working capital net sales.

[Christian Stoehr, executive]

Okay. Ladies and gentlemen, we are looking at the Q&A queue, and we are not seeing any for the participant asking a question. So let me take this opportunity to thank you for dialing in today. As always, if you have any further questions, please do not hesitate to contact any member of the Investor Relations team. And with that, thanks very much for your participation and bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.