Hugo Boss AG

XETRA:BOSS

Earnings Call Transcript 2021-Q3

[Operator]

Dear ladies and gentlemen, welcome to the HUGO BOSS Third Quarter 2021 Results Conference Call. At our customers' request, this conference will be recorded. [Operator Instructions]I now hand you over to Christian Stoehr, Vice President of Investor Relations, who will lead you to this conference. Please go ahead, sir.

[Christian Stoehr]

Yes. Thank you very much, and good morning, ladies and gentlemen. Welcome to our third quarter 2021 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. And let me also remind you that during the Q&A session, we kindly ask you to limit your questions to a maximum of 2. So let's get started, and over to you, Yves.

[Yves Muller, CFO & Member of Managing Board]

Thank you, Christian. And also from my side, a warm welcome to all of you. My presentation today will be primarily focusing on 3 overarching topics. Firstly, and following our pre-announcement from mid-October, I will elaborate in detail on the operational and financial performance of the third quarter. I will also spend some time on the progress we have made along our CLAIM 5 strategy, which we presented to you early in August at our Capital Markets Day. And last but not least, I will take a closer look at our expectations for the remainder of the year. But first, let's have a look at our Q3 results. As you have taken notice from our pre-release, we have seen a strong acceleration in our business recovery during the third quarter as momentum accelerated across all brands, all channels and key regions. Most encouragingly, sales and earnings exceeded pre-pandemic levels for the first time. A global store opening rate of around 95% as well as a meaningful uplift in consumer sentiment particularly across Europe and the Americas contributed to our strong Q3 results. In addition to this, we have made a kick start when it comes to the successful execution of our CLAIM 5 strategy which provided additional tailwind and disparate brand momentum. On that, I will elaborate in more detail in just a few minutes. As a result, group revenues increased 40% compared to the prior year, totaling EUR 755 million in the 3-month period. This translates into a 7% growth compared to prepandemic levels, representing a significant improvement quarter-on-quarter. Importantly, it also marks the strongest third quarter in the history of HUGO BOSS from a top line perspective. So let's take a closer look at the different moving parts of our top line, starting with our brands. Both HUGO and BOSS posted strong double-digit growth in the third quarter, with sales up 38% and 51% against the prior year period. Compared to 2019 levels, sales increased 6% for BOSS with a strong contribution coming from both our men's and women's wear businesses and 14% for HUGO. It is particularly encouraging that growth was broad-based with demand having picked up noticeably across all product categories, reflecting the overall return of social life including the recurrence of events over the summer as well as the long anticipated return to the office. On that, our product offerings are perfectly designed to serve the diverse need of our customers, combining a tailored and modern lifestyle with a strong focus on casualization, comfort and innovation to be worn 24/7 across all wearing occasions. This brings me to our regions with [indiscernible] Europe and the Americas having recorded particularly strong performance in the third quarter. In Europe, with nearly all stores back in operation, revenues increased 38% on the prior year level and 9% on a 2-year stack basis. Thanks to a firm rebound in local demand, business in all of the region's core markets, including the U.K., Germany and France, exceeded pre-pandemic levels, posting robust sales improvements against 2019. Equally encouraging, several markets in Eastern Europe, above all Russia as well as the Middle East continued their strong double-digit growth trajectory compared to the pre-pandemic levels. Moving over to the Americas, where sales almost doubled in Q3 with revenues up 94% to the prior year and 14% on a 2-year stack basis. With virtually all stores back in operation, we recorded strong growth across all of region's key markets. In the U.S., revenues were up 8% compared to 2019 levels driven by double-digit improvements in own retail, reflecting a pickup in local demand, which more than compensated for the persistent absence of international tourism. This development was driven by our many initiatives to accelerate our 24/7 lifestyle brand image including our recent successes when it comes to substantially improving our overall product assortment at the point sales and leveraging casualization trend. This puts us in a strong position to further push ahead with our self-managed turnaround and accelerate growth in the market in the years to come. And while Latin America posted another quarter of mid-double-digit sales increases compared to 2019, revenues in Canada also returned to growth. Finally, in Asia/Pacific, where renewed COVID-related restrictions, including temporary store closures weighed on consumer sentiment in several markets. As a result, sales declined 1% year-on-year and 14% on a 2-year stack basis. This is particularly evident in Southeast Asia, where several markets, including Australia, Singapore, Malaysia, has to cope with long-lasting store closures in the wake of local lockdowns throughout most of Q3. In Mainland China, sales fell 9% compared to last year, but were up 15% compared to 2 years ago. Also here, the overall consumer sentiment was somewhat impacted by COVID-related restriction in reduced traveling, in particular during the month of August. Importantly, business activity has clearly picked up again towards the end of the third quarter and continued to fall in Q4. Also, from a structural perspective, our view on the long-term growth potential of Mainland China has not changed at all. We continue to firmly believe in the tremendous potential of this important market and remain fully committed when it comes to leveraging our business opportunities in China based on our strong brand positioning. Let's conclude on our top line with a brief review of the performance by channel. Starting with own retail where revenues were up 40% on the prior year's level, translating into 13% growth on a 2-year stack basis. In this context, I'm particularly pleased to report that our brick-and-mortar retail business was able to return to growth with revenues up 4% on a 2-year stack. Also, our own online business continued its robust performance, posting yet another quarter of double-digit growth across all regions, with total revenues up 37% versus the prior year. Compared to 2019, sales on hugoboss.com and on self-managed partner websites were up a strong 127%. Finally, in wholesale, revenues also grew 40% compared to last year and hence, remain only 1% below 2019 levels reflecting wholesale partners' solid demand for our brands for winter '21 collections. Within wholesale, momentum was particularly strong with online partners, including digital pure players, leading marketplaces as well as bricks and clicks, as reflected by significant double-digit sales improvement versus 2019. Overall, as a percentage of group sales, we recorded total digital sales within the high teens range in the third quarter. And with this, let's now move on to the main P&L items. Starting with our gross margin, which totaled 61.7% in the third quarter. This represents a minor decrease of 20 basis points year-on-year and a decline of 160 basis points compared to the level of 2019 largely reflecting the overall rise in freight and duty cost in the wake of ongoing global supply chain headwinds. All other effects, including channel mix, markdown activity in ForEx, were broadly compensated for each other. Moving over to operating expenses, which as a percentage of sales totaled 50.4% in Q3. Supported by our strong top line momentum, we generated significant operating leverages as expenses remain 880 basis points below the prior level and 140 basis points below that of 2019. In absolute terms, selling and distribution expenses were up 19% compared to the prior year period but remains 2% below 2019 levels. While rental and payroll costs on own retail has started to gradually normalize with the vast majority of our stores being back in operation. We also recorded higher marketing investments, up 36% versus last year and 6% above pre-pandemic levels. This development reflects our key initiatives in our CLAIM 5 strategy, all aimed at driving brand relevancy for BOSS and HUGO. The phenomenal launch event for our second BOSS meets Russell Athletic collection was a clear highlight in this regard, something I will elaborate on in detail in just a few minutes.Administration expenses on the other side increased 26% compared to the prior year and 21% on a 2-year stack, largely reflected higher payroll costs. This development is mainly attributable to accrued expenses reflecting the recent business performance against our initial expectations. Our strong top line development as well as the significant operating expense leverage resulted in an EBIT of EUR 85 million in Q3, well above the prior year level. Compared to 2019 levels, EBIT was consequently up 3%. And now to conclude on the P&L, net income attributable to shareholders totaled EUR 53 million in the third quarter. Let's now turn quickly to the balance sheet, starting with trade net working capital, which declined 11% versus the prior year. An increase in trade receivables, mainly reflecting the further recovery of our wholesale business in the third quarter was more than offset by higher trade payables as well as a lower inventory position. The latter saw a decrease of 6%, reflecting our strong top line performance as well as ongoing tight inventory management. Now in terms of capital expenditure, investments in the third quarter totaled EUR 26 million, up 40% on the prior year. As in previous quarters, investments were primarily related to our global store network as well as our digital capabilities. This brings me to free cash flow, driven by the strong increase in EBIT as well as the improvements in trade net working capital, free cash flow amounted to EUR 171 million, up 10% on the prior year level. Compared to 2019 levels, free cash flow generation even more than doubled. And to finish on our financial position, net financial liabilities decreased to EUR 20 million when excluding lease liabilities in the context of IFRS 16. Consequently, HUGO BOSS was nearly debt-free at the end of the third quarter. Now ladies and gentlemen, this concludes my remarks on our Q3 operational and financial performance. Before moving over to our expectation for the final quarter of 2021, let's now dig deeper into CLAIM 5 and the progress we have made when it comes to executing our 25 -- 2025 strategy. Only 3 months after our strategic presentation in early August, I am pleased to report that the execution of CLAIM 5 is literally in full swing as we speak. With the first great stride being made along key initiatives, be it from a brand, product or sales perspective. Starting with the undisputed highlight from a brand and marketing perspective, which was the phenomenal launch of our second BOSS meets Russell Athletic collection back in September. Fully in line with our strong strategic pillar of boosting brands among younger consumers, we celebrated the collections launched digitally aimed at generating as much excitement on social media as possible. And I can assure you, the results have surpassed even our own high expectations. The physical collection presentation at baseball stadium as part of Milan Fashion Week features numerous celebrities such as Gigi Hadid, Irina Shayk and TikToker Khaby Lame, while setting the stage for an extensive activation on social media with several high-profile influencers taking center stage. Among others, Chiara Ferragni and Fedez, we created tremendous digital buzz around the globe. And with nearly 4 billion impressions and over 25 million engagements across all social media channels in only 4 days, it was the largest social first event in our company's history and one of the biggest social media events in the fashion industry to date. Most importantly, and in line with our strategic pillar, Product is King, the collection strongly emphasizes our clear ambition of establishing BOSS as a true 24/7 lifestyle brand. Therefore, exceptional collaborations like the one with Russell Athletic would not only be decisive for creating strong buzz among younger consumers but also for further strengthening our position in the crucial casual wear segment. The partnership of BOSS and Russell Athletic is our blueprint of how we will fully unlock our brand's great potential in the future, enabling BOSS and HUGO to become the leading power brands. And believe me, there is much more to come in the coming weeks and months. In January already, we will kick off brand new marketing campaigns for BOSS and HUGO presenting our brand on a truly global scale by strongly emphasizing a new boldness, confidence and attitude in line with our highly anticipated branding refresh. So stay tuned. Speaking of our branding refresh. The upcoming spring/summer 2022 collections, which will hit the shelves from January onwards will be the first collections to fully incorporate the complete new look and feel of BOSS and HUGO with a clear point of difference aimed at strongly elevating brand relevancy. And as we already highlighted at our Capital Markets Day back in August, initial feedback on these collections from our wholesale partners has been overwhelmingly positive as reflected by double-digit increase in the overall order intake for spring/summer 2022. Importantly, the branding refresh goes far beyond our products and stands up until our consumer touch finds from our brand logos over marketing and social media to new designs in retail and digital. Speaking of digital, our CLAIM 5 strategy also contains the strong commitment to lead in digital enabling us to deliver on our vision to become the premium tech-driven fashion platform worldwide. In this context, execution at our recently established digital campus is already running at full steam. One of our first priorities will be the global relaunch of hugoboss.com scheduled for early 2022. Following a clear mobile-first approach, our new online flagship will offer various state-of-the-art functionalities, all strongly enhancing the online customer journey and accelerating traffic as well as conversion to fully exploit the digital opportunities in the years to come. This brings me to our brick-and-mortar business where we are about to roll out our new store concept, starting with some first pilot in Dubai in the coming weeks. Early in 2022, we will then open our first fully rebranded flagship store on London's Oxford Street, one of our future global anchor stores and celebrate the official launch of the branding refresh at our point of sale. We are convinced that our new store concept will contribute significantly to developing our stores from a point of sale to 2 points -- to true points of experience, more emotional, more welcoming, more digital and importantly, more productive than ever before. Now at the end of the day, it all comes back to the successful execution of all strategic pillars to ultimately make CLAIM 5 the winning formula and to deliver on our vision and ambition. Consistent and rigorous execution is, therefore, firmly embedded within our CLAIM 5 strategy. In this context, we have made a number of key personal changes over the last weeks and months and thereby further strengthening our diverse and highly experienced senior management team. With Kristina Szasz and Christopher Koerber, we have added strong competencies to our global brand organization as both look back at extensive global experience in brand management and product development. Going forward, Kristina Szasz will drive the realignment of our important BOSS womenswear business. And Christopher, on the other hand, will ensure that we will make the most out of our key product categories, such as shirts, bodywear and shoes and accessories. On top of that, Miah Sullivan joined our company in mid-2021, driving our global marketing and brand communications activities. With many years of international marketing experience in the fast industry, Miah brings tremendous expertise in brand building and brand strategy. She will, therefore, strongly contribute to our ambition of becoming a top 100 global brand by substantially growing brand value for BOSS and HUGO in the coming years. To further strengthen our global sales organization, Luigi Boiocchi and Judith Sun have recently joined HUGO BOSS. Luigi, a proven sales expert in the premium apparel industry will lead our newly created sales of emerging markets in Russia. And under the leadership of Judith, who brings broader multiyear experience in fashion and luxury related industries, we have every confidence, we will leverage the full potential of the important Chinese market in the years to come. Ladies and gentlemen, as you can see, we haven't wasted our time but instead put the pedal to the metal straight away when it came to the execution of CLAIM 5. Importantly, we have the right organization and the right people in place to ensure we will deliver on our 2025 ambition. In this context, the year 2021 marks the first important milestone in achieving our ambitious midterm goals. Like in many aspects of life, getting out of the blocks quickly and strongly is important as it will further provide momentum to our strategic execution. Let me therefore guide you through our expectations for 2021 and the important final quarter in particular. As you have taken notice from our pre-announcement of mid-October, we increased our outlook for the current fiscal year, reflecting the strong top and bottom line performance in the third quarter as well as our confidence for the remainder of the year. From a top line perspective, we now forecast group revenues in 2021 to increase by around 40% as we are confident to carry over our strong momentum from the third quarter also into Q4. At the same time, we are factoring in persisting levels of macroeconomic uncertainty. In particular, when it comes to COVID-19, we continue to be confronted with ongoing volatility. As we speak, we are facing impacts from renewed lockdowns in some Eastern European markets, including Russia, where we have been enjoying strong momentum so far in 2021. In addition, several Asian markets, among others, Singapore, Malaysia remain impacted by ongoing store closures. Another topic we must not ignore is the ongoing global supply chain headwinds that our industry is currently experiencing, something we are not immune to considering our global business activities and global sourcing infrastructure. Having said this, let me be also be very clear that we are in the fortunate position of benefiting from a well-balanced regional sourcing mix as well as a comparatively high share of own production.Around half of our merchandise value is currently sourced in Europe and our own production site, including our large plant in Turkey, account for more than 15% of our total sourcing value. We are therefore confident of being able to mitigate most of the potential short-term supply chain headwinds from a top line perspective. Now with regards to our bottom line, we are now forecasting EBIT to come to a level of between EUR 175 million and EUR 200 million in fiscal year 2021. Also here, we have already factored in some of the ongoing uncertainties, in particular, when it comes to the overall rise in global freight and duty costs, which is expected to continue to weigh on our gross margin development for the time being. Besides this, allow me to reiterate that we are -- and what we already highlighted during our CMD in August, while we are fully committed to delivering strong improvements in profits over the next 5 years in line with our CLAIM 5 strategy, we are also committed to stepping up our investments in the months and quarters ahead, in particular in the areas of marketing and digital. Starting in Q4, these investments will, therefore, lead to a substantial increase in operating expenses, most certainly even beyond pre-pandemic levels. To complete the picture on our outlook for the current fiscal year, we now expect trade net working capital as a percentage of sales to improve to a level of between 19% and 20%. At the same time, we continue to forecast CapEx to increase to a level of between EUR 100 million and EUR 130 million. I would like to conclude today's presentation by emphasizing once again that with CLAIM 5, we have laid out a clear strategic road map until 2025, and we are already in full execution mode. Our strong third quarter results are proved positive of that. We are fully committed and prepared to further drive strong top line growth in the quarter and years ahead, claim our position in the consumers' minds and win market share with our unique brand BOSS and HUGO. And with this, ladies and gentlemen, I'm now happy to take your questions.

[Operator]

[Operator Instructions] The first question is coming from Elena Mariani at Morgan Stanley.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

My first one is on your guidance. I mean on a few things that you have just mentioned. So the market has perceived your fiscal year EBIT margin guidance as a bit conservative. You have clarified that you intend to grow your OpEx and invest more starting from the fourth quarter. So can you be a little bit more precise there? So what's the level of OpEx inflation that we should expect going into year-end? And as part of this question also, can you tell us a little bit more how we should expect gross margin to evolve? Typically, the fourth quarter has a relatively high gross margin level? Should we expect this to happen? Or are you already investing also in the product, which is one of the reasons why your gross margin over the medium-term is also going to move a little bit down?And then my second question is a little bit on your strategic priorities going into fiscal year '22. So you've laid out quite a few of them. You've talked about a new store format, focus on digital. You've hired several new managers. But you have also a lot going on in terms of rebranding, having BOSS Orange and BOSS Camel and other sub-brands reemerging as well. So how should we think about fiscal year '22 out of all the initiatives that you have laid out in August, what is going to come through over the next 12 months?

[Yves Muller, CFO & Member of Managing Board]

Thank you very much for your question. So first of all, perhaps talking about Q4 and the perspective that you're taking that we have a kind of conservative approach for Q4. So perhaps one first comment regarding current trading. So what I can clearly say in the month of October, we have even seen some acceleration in top line, so which we view as very positive in terms of our own business performance. So we really clearly enjoy a very good momentum. So on the other side, we have to say that for the remaining months of November, December, we still see some uncertainties as I laid out during my presentation. So from the top line perspective, you see especially in Europe that the new infection rate rising, and we have some uncertainties around what the local authorities will be doing, how will they will be restricting the public life and so on. We have seen lockdowns in some Eastern European countries, including Russia. So we are a little bit cautious when it comes to this for the remaining of the month and be aware that Q4 is very important because of the holiday season, the Christmas, a lot of commercial events that take place in Q4. On top of this, if you take the gross margin, what we should expect is that these headwinds that we're having from a freight and duty cost perspective, that our supply chain, it will be fine from a top line perspective, but that we will see some effects in the gross margin and some headwinds there, the same magnitude that we have experienced actually in Q3 for Q4. And we are, of course, very closely monitoring this, how this will develop and how the -- if these freight costs somehow will be sustainably high. We have to observe this. But for the time being, Q4 will be clearly a kind of headwind regarding gross margin. On OpEx, I think and this must be clearly visible. We will invest in CLAIM 5 as a growth strategy. We want to double the business from EUR 2 billion in 2020 to 2025 to EUR 4 billion. And with this growth strategy, we have to invest, and we're going to invest into brands. We will increase our marketing spendings. We will increase our digital spendings. And that's the reason why we come to our guidance as we laid it out for the remaining of the years, but we will clearly step up our investments in Q4. And when you're talking about our strategic investments in 2022, I can just assure you that we are clearly pushing the pedal to the metal at full steam. So if you take the different claims boosting the brands, we will come in the end of January, when the new products with the new branding, with the new points of difference is already visible for the end consumer. We will align this with a big marketing campaign for both brands, BOSS and HUGO at the end of January. So we will start already in the beginning of the year 2022. We are heavily working on this. And I think there's going to be a big firework and will clearly boost our both brands, BOSS and HUGO, right in the beginning of the season. The second big thing what we are doing about Product is King. We are clearly aligning our products, especially the spring/summer collection has already the branding refresh and the new lines, Camel, Green, Orange, they are all in full swing. They have been sold to the wholesale partners with great order intake, as I laid it out. So this will be as well the new products are hitting the floor in January. We'll be both visible for wholesale and for retail. And then for an early 2022, we will do a -- relaunch our hugoboss.com website in order to improve the customer journey. We want to improve the traffic. We want to improve our conversion rates on our big digital flagship. So we are in the digital campus. We are working on this. It's everything, the project is in line. And so we will launch our new website already in early 2022. And another big step in Q1 will be in the new store concept, where we have our new anchor store in London Oxford Street close to [Indiscernible], which will be opened in the first quarter of 2022, where we were rolling out and start the beginning of our new store concept, which we're all very excited about. So you can see, really, I clearly have to say the execution of our CLAIM 5 strategy is really in full swing. I think the Q3 results are actually a clear proof positive that we are going into the right direction. And we clearly -- there's much more to come, especially in the beginning of the year 2022.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

I mean it sounds like a lot. Just a very small clarification. So when you say that you're going to invest more into the fourth quarter. So in Q3, in terms of OpEx was up 2% versus '19. So should we expect Q4 to be up, for example, high single digit versus '19? Could this be a good approximation?

[Yves Muller, CFO & Member of Managing Board]

Yes. I think you can -- like we were saying, I mean, you could see it already in Q3. Our marketing expenses were up plus 6% versus 2019 numbers. So you can expect -- the range that you were indicating, I think you are more or less there.

[Operator]

The next question is coming from Jurgen Kolb at Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

Two questions also from my side real quick. First of all, I was wondering if you could maybe give us some indications about China in more details, especially how did the sales performance in Q3 trend in your own shop -- own shops in the partnerships and your own online business, especially Q3 and maybe also what you're seeing as an early start in Q3? And the second one is on the pricing strategy for spring/summer 2022, but also as maybe an early comment on fall/winter 2022. What's your strategy in terms of pricing for 2022 overall?

[Yves Muller, CFO & Member of Managing Board]

Yes. Jurgen, thank you very much for your 2 questions. So talking about China and the Q3 numbers. So what you could see in China that at the end of July and actually in August, the net sales performance was a little bit muted because of new COVID restrictions and actually stay at home orders for -- so the traffic clearly was lower in this kind of a period, I would say, of 6 weeks and the people were actually traveling less. On the other side, what I can say is that we clearly have gained momentum at the end of the quarter. So in September, we were positive versus 2019 in the high teens already. Back -- and I can assure you, like I said with my general comment to Elena's question that our net sales even accelerated in October. So we see this as a positive sign. But as I laid out, we don't know a lot of uncertainties around COVID-19. We don't know what's actually happening in November, December. So we are cautiously optimistic. But if I look at my current numbers, you can clearly see a kind of acceleration in both channels, brick-and-mortar business and in online business. And with regard to our pricing strategy when it comes to 2022, of course, we are observing the increase in raw material prices and the increase in freight. For the time being, we have not taken the decision to adjust our prices, but we clearly observe this very closely, and we will take a decision in the beginning of the year 2022, most likely, if this is a kind of persisting trend of cost inflation in our industry.

[Operator]

The next question is coming from Antoine Belge at Exane BNB Paribas.

[Antoine Belge, Research Analyst]

It's Antoine Belge, BNB Paribas. Two questions. First of all, with regards to your comments about the gross margin, would it be possible to quantify a bit more precisely what was specifically the impact of this initiative, the supply chain level in Q3? And do you expect them to be pretty much the same in Q4? And as a result of that, what would be the sort of new guidance for gross margin over the full year. I think in the past, you indicated it would be for 2021 as a whole in between 2019 and 2020. We refer to assume that now we were really maybe closer to the 2020 level. And the other question is regarding the U.S. market, which seems to be on fire for yourselves. Two question within this one. One would be that some consumer goods companies are a bit cautious about what's happening in the U.S. I think that part of that is a bit cyclical? And so what's your view on the possible lending of the U.S. market? And then what is more specific to HUGO BOSS, especially in terms of maybe increasing the quality of the distribution there beyond the sort of more specific initiative products, especially the the collaboration with the NBA and Russell Athletic.

[Yves Muller, CFO & Member of Managing Board]

Yes. Belge, Antoine, thank you very much for your questions. So first of all, talking about our gross margin. I think your observation is right because the freight and duty costs increased because of the supply chain disruptions will be a kind of headwind on the gross margin. So overall, as a consequence, we expect that the Q4 gross margin will be in a similar range than the Q3 gross margin overall. So this is the perspective that we are having, and what we are seeing. All other things are somehow equal. We still have to see it, of course, regarding discounts, but this is the range that we are seeing. So overall, a little bit lower than we have originally anticipated because of this freight and especially this freight cost increase. And regarding the U.S. market, I clearly can say that our net sales momentum is clearly accelerating even in the month of October. So we have a very good business, especially coming from the local demand. And actually on 8 of November, especially for the U.S. market, they are opening now the tourist market. So actually, there, we expect that the sales can even -- might even increase because of the international tourism now being back in the U.S. But talking about U.S. itself, I think, clearly, for us, it's a kind of HUGO BOSS recovery because it's a kind of self-managed turnaround. HUGO BOSS was I would say, 12, 18 months ago, position as a seed-only company. I think we have changed this dramatically with the new management team. And these new collaborations we have with Russell Athletics and NBA, they are clearly helping us in positioning BOSS as a clear 24/7 lifestyle brand. And this is visible. We have younger cohorts coming into our customer base, which is helping us. They are rebuying. And Antoine, it's really a kind of HUGO BOSS business, which is running into the right direction, and we are very happy about this. And we are very confident that this will somehow continue.

[Antoine Belge, Research Analyst]

Just in terms of maybe within the overall 160 basis point comparison in Q3, maybe a quantification of the impact specifically on is it all freight costs or were there other factors at play that maybe were pluses or minuses in that overall evolution?

[Yves Muller, CFO & Member of Managing Board]

Yes. So if you talk about Q3, the hit of the freight and duty costs were around 160 basis points. And you can -- EUR 160 million.

[Operator]

The next question is coming from Manjari Dhar at RBC.

[Yves Muller, CFO & Member of Managing Board]

Well, maybe -- Mr. Operator, maybe we can move on to the next person then. I guess this is Michael Kuhn from Deutsche Bank.

[Michael Kuhn, Research Associate]

Just one follow-up from my side. You spoke quite extensively already about the risks into the fourth quarter. So from the very recent developments, store closures in some areas, what impact did you experience your business? And I think even more interesting with the rising incidence rates in several European countries, Did you see any impact on frequencies in the stores already? Or is it still too early to see those effects?

[Yves Muller, CFO & Member of Managing Board]

So Michael, I think it's still too early to comment this. The lockdowns we are now experiencing in Russia, for example, is is on a timely manner, so they close it down for 10 days. On the other side, for example, lockdowns like in Australia, after those lockdowns have been released, you see actually quite decent performance after the lockdown is over, but it always depends how long the lockdown really takes. So overall, it depends market by market, and it's clearly too early to call it out. And actually, I made my comment on the October numbers already. So I think we have to observe this week by week, but it's clearly too early to call it out.

[Michael Kuhn, Research Associate]

Okay. So no impact on the frequency from the rising incidences.

[Yves Muller, CFO & Member of Managing Board]

No.

[Operator]

Next question coming from Jorg Frey at Warburg Research.

[Jörg Philipp Frey, Senior Analyst]

First of all, one quick housekeeping. Did I get it right that particular performance, bonus and other things impacted the increase in your admin expenses in the third quarter. And then a bit looking out into 2022, well, with all the supply chain bottlenecks, what's your view actually on the ordering behavior of retailers in general? Have you any fears that there is over ordering occurring? Or do you think that you are actually gaining market share because you were one of the few guys who's committing to volume? Any views on that one, please.

[Yves Muller, CFO & Member of Managing Board]

This is Yves speaking. So regarding admin expenses. So I can clearly confirm that this is related to payroll cost to the short-term bonus and the long-term bonus. So these expenses have been accrued. And as you might know, the long-term program is actually related to our share price performance as well since the share price was constantly increasing. We have to adjust our accruals there as well, and this was the major driver actually of a kind of outperformance versus our initial expectations that were driving the administration expenses. And regarding the outlook, I think what we have experienced, I think, the wholesale partners that are buying and who were buying on spring/summer collection that was clearly not out of the situation of supply chain issues. I think then somewhat confidently say that was based on our branding refresh and our great product improvements that we're doing in our our collections. So we have -- this is a very good order intake for the spring/summer collection and supply. We haven't seen any observations that those partners were overbuying because of supply chain issues. At the end, we want to be more relevant to the end consumer with good products. We want to increase our market shares in the majority of the market.

[Operator]

The next question is coming from Rogerio Fujimori at Stifel Europe.

[Rogerio Fujimori, Director & Analyst]

The first one is the retail space contribution, which I think was 5% in Q3 and year-to-date. And should we expect a similar level of retail space in Q4 in '22 based on your opening pipeline and client acquisition of franchisees? And then related to that, in Americas, I think on Page 23, we can see that Americas finished Q3 with 301 on retail points of sale versus 269 at the end of June. So the number of freestanding stores were unchanged. So what happened in Q3 in terms of shop-in-shops and outlets in Americas? Or what was the contribution from space perhaps to retail growth in Americas in Q3?

[Yves Muller, CFO & Member of Managing Board]

So actually, Rogerio, I didn't get your first question because you were very fast in asking. I just noted that you were aiming at some retail space issues. So perhaps can you repeat your question?

[Rogerio Fujimori, Director & Analyst]

It's just the retail space contribution that we should expect in Q4 and '22.

[Yves Muller, CFO & Member of Managing Board]

So actually, from a retail space perspective in Q4, you should not expect major differences in contrast to Q3 because -- especially in Q4 because it's the most important quarter from a kind of regional -- from a kind of commercial moment. you don't do any renovations actually in Q4. You try to limit this because of the most important season. So from a space, you should expect that this is somehow rather stable. And with regards to the U.S. business, I think you were asking about retail space there as well. So here, we were -- we had in our numbers that with Macy's, we added some more shop-in-shop, I would say. We added 14 shop-in-shops overall in comparison to 2019 because of a good business with Macy's. So that was the kind of retail space effect that we have. But that was -- in terms of square footage, it's not a major driver of the performance actually in Q3 for the U.S. market.

[Operator]

The next question is coming from Thierry Cota at Societe.

[Thierry Cota, Equity Analyst]

Two questions for me. First, can you comment on promotionality at the end of Q3 and potentially in Q4? Maybe with all the bottlenecks that we see across the industry promotion has come down. If I'm not wrong, the gross margin in Q3 was potentially better than what we could have feared at the beginning of the summer. So if you could just comment on that. And secondly, just a follow-up. On the October acceleration, I was wondering whether this is over 1 year or also over 2 years? And maybe just on the retail comment you literally just made. I was wondering about the difference between the number of stores, the mainland stores that have been opened meaning very little and actually the rise in the overall points of sales. I suppose that this is what you said, the shop-in-shops in America. I was wondering if there were any other factors shop-in-shop elsewhere and/or potentially outlets.

[Operator]

There seems to be a small technical issue with the line. We'll go into a quick break and come back.

[Yves Muller, CFO & Member of Managing Board]

Sorry, we are back. Okay. So sorry, we were all mute. So I have to repeat what I've said. So first of all, regarding the markdown activity, I clearly can confirm that we -- that the markdown activity was lower in Q3 in comparison to Q2. So your observation from the overall market can be confirmed. Regarding your question regarding the current trading in October, yes, we look clearly at a 2-year stack basis as the best comparison base for the time being because the -- these were the pre-pandemic levels. And so the comment I was making regarding the acceleration of top line performance referred as well to the 2-year stack basis. In retail, if you look at the number of stores, so we are pointing out our freestanding stores, which are more or less stable closings because we are still in the middle of optimizing our store portfolio as we laid it out during our CLAIM 5 strategy. We clearly want to optimize our store portfolio and invest into those locations, which are very promising and good for the brand. So the freestanding store are more or less stable. And the increase that we have seen in terms of our number of stores primarily related to shop-in-shops, which is actually Macy's and Hudson Bay in Canada compared to prior year.

[Thierry Cota, Equity Analyst]

Okay. So basically the comment is that space, as you said previously, is not going to have much of an impact either on Q3 or going forward?

[Yves Muller, CFO & Member of Managing Board]

Yes. Correct. Okay. Great. Ladies and gentlemen, I guess that was the last question for today. Manjari, if you readied, you can always give me a call afterwards, and we can care for your questions. But this completes today's conference call. And the same goes out to all of you. Any questions, please do reach out to the Investor Relations team. And with that, thank you for your participation, and goodbye.