HUGO BOSS AG (BOSS.DE) has reported its Full Year 2023 financial results, revealing a robust performance with sales surpassing the €4 billion mark for the first time in the company's history. The fashion giant announced that it exceeded its midterm sales goal two years ahead of schedule, achieving a significant 18% increase in revenue to €4.2 billion.
The operating profit also soared to €410 million, outperforming their initial EBIT guidance. The success was credited to the effective implementation of the CLAIM 5 growth strategy, which emphasizes enhancing brand appeal, product refinement, omnichannel strategies, digital leadership, and organizational growth.
Key Takeaways
- HUGO BOSS achieved record sales of €4.2 billion and an operating profit of €410 million in FY 2023.
- The company's CLAIM 5 growth strategy drove strong performance across BOSS and HUGO brands globally.
- A proposed dividend of €1.35 per share was announced for the fiscal year.
- HUGO BOSS anticipates sales growth of 3% to 6% in 2024, with a cautious outlook due to macroeconomic and geopolitical uncertainties.
- The company remains on track to reach its 2025 revenue ambition of €5 billion and an EBIT margin of at least 12%.
Company Outlook
- HUGO BOSS expects group sales to grow between 3% and 6% in 2024.
- The company is confident in achieving a revenue target of €5 billion by 2025, with a potential slight delay.
- An EBIT margin of at least 12% by 2025 is confirmed, with robust earnings growth anticipated for 2024.
- Investments in brand and product enhancements, customer experience, digital capabilities, and logistics are ongoing.
Bearish Highlights
- Weak consumer confidence in key European markets and China's economic struggles could impact future sales.
- Challenges in Europe include issues with department stores and consumer sentiment, particularly in the UK.
Bullish Highlights
- Double-digit growth was seen across BOSS and HUGO brands, with strong performance in the Americas, EMEA, and Asia Pacific regions.
- The company's digital business, brick-and-mortar retail, and wholesale segments all experienced growth.
Misses
- Despite strong brand performance, gross margin has been flat due to promotions and inventory management issues.
- Sales in China have been flat, attributed to slower consumer spending and a focus on payments.
Q&A Highlights
- CEO Daniel Grieder emphasized the strategy to become a 24/7 lifestyle brand and market share gains in the casualwear market.
- CFO Yves Muller discussed improving gross margin through product cost control, sourcing efficiency, and brand expansion.
- The company aims to reduce air freight share from high-teens level in 2023 to a high single-digit rate by 2025.
- Free cash flow guidance for 2024 is projected at around €500 million, with a positive swing from trade net working capital.
HUGO BOSS has demonstrated a strong financial performance in FY 2023, with significant growth in sales and operating profit. The company's strategic focus on brand relevance, product offerings, and customer experience, coupled with digital initiatives and logistical expansions, has positioned it well for continued success. Despite some uncertainties in the macroeconomic environment, HUGO BOSS's leadership expresses confidence in the company's long-term potential and commitment to achieving its ambitious financial targets.
InvestingPro Insights
Amidst the robust financial performance outlined by HUGO BOSS AG (BOSS.DE), InvestingPro data and tips provide a deeper dive into the company's market position and potential future performance. With a market capitalization of $4.11 billion and an adjusted price-to-earnings (P/E) ratio of 17.2 for the last twelve months as of Q3 2023, the company is trading at a valuation that considers its near-term earnings growth. This aligns with the InvestingPro Tip highlighting the company's low P/E ratio relative to near-term earnings growth, suggesting that investors may find the current valuation attractive, especially when considering the company's profitability over the last twelve months.
The gross profit margin stands at an impressive 61.44%, which is a testament to the company's ability to maintain high profitability in its operations—a fact underscored by the first InvestingPro Tip. This is particularly relevant given the article's mention of flat gross margins due to promotions and inventory management issues, indicating that despite these challenges, HUGO BOSS maintains a strong underlying profitability.
However, the company's stock has experienced significant pressure, as indicated by a one-week total return of -13.42%, which may be a reflection of the broader market sentiment or specific challenges faced by the company. This is corroborated by the second InvestingPro Tip, which notes that the stock has taken a big hit over the last week, and the company is trading near its 52-week low.
Investors looking for more insights can find additional InvestingPro Tips at https://www.investing.com/pro/BOSSY, with a total of 9 tips available to help guide investment decisions. For those interested in a deeper analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to a wealth of financial data and expert insights to inform your investment strategy.
Full transcript - Hugo Boss AG (BOSSY) Q4 2023:
Christian Stohr: Good morning, everyone, and welcome to our Full Year 2023 Financial Results Presentation hosted by Daniel Grieder, CEO of HUGO BOSS; and Yves Muller, CFO and COO. Today's conference call will be divided in three parts. Daniel will kick off by discussing our biggest strategic achievements in 2023 and the impact on our growth strategy, CLAIM 5. Afterwards, Yves will present our financial performance in the last fiscal year and walk you through our full year 2024 outlook. As always, we will conclude with a Q&A session during which Daniel and Yves will be happy to answer your questions. Before I hand over to Daniel, allow me to remind you that all revenue-related growth rates will be discussed on a currency-adjusted basis. I would also like to 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, Daniel.
Daniel Grieder: Thank you, Christian, and good morning, everyone. Thanks for joining our call today. As you could see from our pre-release in mid-January, 2023 was another record year for HUGO BOSS and it marked a further important milestone along our growth journey. As the CEO of this company, I'm incredibly proud of what we have accomplished since we introduced CLAIM 5. The second full year of strategy execution brought strong achievements across all business areas and drove the momentum of our two brands: BOSS and HUGO. This enabled us to gain further market shares in 2023. With €4.2 billion in sales, 2023, we were able to cross the €4 billion sales mark for the first time in our history. This means we have exceeded our initial midterm sales target two years ahead of plan with broad-based growth across both our brands, all regions and all consumer touch points. And despite further investments into our business, we also recorded notable bottom-line improvements. Operating profit amounted up to €410 million, which represents almost €50 million more compared to the midpoint of our initial EBIT guidance for the year. This is a clear testament to the power of CLAIM 5. Without any doubt, we implemented the right strategy at the right time; a strategy that unleashes the full potential of our brands and drives top and bottom-line growth. There is also no doubt that our winning formula, CLAIM 5, will continue to guide us in the future as we see many more business opportunities in the years to come, be it from the brand, channel or regional perspective. Against this backdrop, our initial guidance for 2024 might look somewhat conservative at the first glance. However, given the prevailing macroeconomic environment and considering it is still early in the year, we firmly believe in our approach. Yves will provide more details on 2024 in a short while. But before we do that, let's first take a look at our very strategic achievements. They form the basis of our strong operational and financial development in recent years. Moreover, they are requisite for the way forward, provided us with an important foundation for sustainable and profitable growth. Ever since we introduced CLAIM 5 in August 2021, we have made strong progress. In particular when it comes to accelerating brand relevance, our brands have gained significant awareness, our product offering has clearly improved, and we have elevated the customer experience at our point of sales. At the same time, although less visible from the outside, we successfully strengthened our organization over the past 2.5 years. Today, we have the right team in place, we have embraced digital transformation, and we have built a flexible yet resilient supply chain. This robust foundation is all the more important as we look into the future. It will foster our operational flexibility and responsiveness and enable profitable growth. Therefore, let's take a deeper look at all these achievements and how 2023 played into that. Let's start with what makes me particularly proud. Our brands Boss and HUGO are notably stronger than in the past, a clear testament to our first CLAIM: Boost Brands. This shows that we put consumers at the center of everything we do. Following our successful branding refresh in 2022, we continuously boosted brand relevance also in 2023. Our 360-degree marketing approach plays a key role in this success. A couple of weeks ago, we launched our latest BOSS campaign, once again featuring a diverse all-star cast from supermodel Gisele Bundchen to well-known BOSS ambassador Lee Minho and Matteo Berrettini. And only yesterday, we unveiled Taylor Fritz as our new BOSS ambassador, further strengthening our presence in sports. Also for HUGO, the last few days were quite eventful. We just launched our Summer 2024 campaign, which embodies the brand's new dual identity around iconic red and the new blue color codes. On top of our campaigns, we fueled brand momentum through unique fashion events and high-impact brand initiatives. Our spectacular Miami and Milan fashion shows clearly rank among my personal highlights, of course, closely followed by the strong collaboration such as Formula 1 with BOSS, and most recently also with HUGO. Thanks to these initiatives, also in 2023, we further activated the narratives of Be your own BOSS and HUGO your own way. It is particularly encouraging that all these investments are paying off as reflected by our strong momentum on social media. In 2023, BOSS was once again the fastest-growing brand on Instagram while also outperforming in terms of engagement. And HUGO was the most viewed brand on TikTok among its core peers. Our numerous efforts to be on top of the consumers' minds have once again earned BOSS the first place in our latest brand heat ranking, covering key premium apparel brands. It's the second year in a row that we have made it up to the top ranking. Also the fact that we are strongly growing our customer base underlines our success when it comes to earning consumers into fans. In 2023, we were able to grow our member base by more than 30% with the important U.S. market even seeing an increase of 40%. This proves positive that we have [meanwhile] positioning BOSS and HUGO as true 24/7 lifestyle brands, appealing strongly to both millennials and Gen Z. Speaking about the 24/7 lifestyle naturally brings us to another accomplishment. Within our second CLAIM: Product is Key, we have refined our product range. This includes further optimizing our price value proposition and investing into our product offering to ensure highest quality, always a particular focus on driving innovation and sustainability. With our various brand lines, today, we are delivering on our promise of perfectly addressing our customers for each occasion. As we speak, our latest addition, HUGO Blue is just hitting the sales floors, enabling us to leverage the denim opportunity with young generations. And for BOSS, we are rolling out the exclusive BOSS Camel line. Feedback on Camel from our partners and our customers continue to be promising, and we are eager to further expand the pinnacle of product offering. To anchor our position in consumers' minds, in addition to high-impact collaborations, we continue to strengthen our license business. This includes the expansion into lifestyle areas such as equestrian and cycling, but also the launch of our exclusive suitcase collection with Samsonite. Product initiatives like these [are] seamlessly extended our 24/7 approach, always with a clear focus on the needs of the customers. [Talking] of customers' expectations, in today's world, we consider sustainability as a prerequisite to inspire consumers around the globe. We therefore keep pushing product innovation, fully in line with our mission statement: we love fashion, and we change fashion. As part of our collaboration with HeiQ in 2023, BOSS successfully launched the first polo shirts made almost 90% AeoniQ. They're the world's first sustainable circular yarn. And at our BOSS fashion show in Milan, we presented a limited-edition capsule also crafted with the fabric, which sold out quickly. Now switching to the sales perspective, which brings us to our fourth CLAIM: Drive Omnichannel. We have made great strides in elevating the customer journey and offering a superior brand experience across all touch points from retail to wholesale and digital. Thanks to the rollout of our latest store concept, surprising pop-ups and premium hospitality services, we achieved further progress when it comes to turning our own retail stores the place to be. Today, 40% of our stores are already offering the new look and feel, including key BOSS stores in London, Dubai and New York. Importantly, the enhanced customer experience has led to further productivity improvement in 2023, up 4% versus the prior year. With a clear focus on strategic partnerships, we keep leveraging our opportunities in the wholesale channel. This enabled us to successfully improve brand visibility and expand market shares at key department stores. And I'm particularly pleased that the feedback we are getting from our partners remains positive when looking at our order intakes for 2024. Finally, on digital, where we further improved the digital experience last year, we relaunched, fortified our digital flagship, hugoboss.com as well as our dedicated app. In addition, we expanded our digital presence through our partners. By capitalizing on these efforts, we have achieved further market share gain and increased our digital revenue shares to almost 20%. As you can see, ladies and gentlemen, since introducing CLAIM 5, we have made strong progress, particularly along those claims that are directly tangible for the consumers. Now let's shift focus and take a look behind the scenes. As I already mentioned, CLAIM 5 is not just a facelift of HUGO BOSS. It's also about building a robust organizational platform aimed at further strengthening and operational execution. Our strategic claims: Lead in Digital and Organized for Growth, play a crucial role in this as well as our people and teams. Our highly committed workforce is key to our success. In 2023, we added more talent to the team, bringing our global workforce to almost 90,000. We empowered our employees to fully embody the bold spirit of CLAIM 5 and build trust as the basis of our corporate culture. To offer the right environment, we keep investing in our organization, creating the campus of the future here at our headquarters. Now with the right people and the right mindset in place, we will put an even stronger focus on executional excellence. Enhancing the resilience and flexibility of our supply chain is another way of strengthening our operational foundation. Thanks to our near-shoring initiatives, we are making further strides towards an even more balanced footprint. Around half of our sourcing volumes comes from Europe. This is also a strong commitment to our important own product sites. After successfully expanding our largest production facility in Izmir, in late 2022, our new plant dedicated to the production of casualwear was running at full speed last year. On top of that, we started to expand one of our major logistics hubs near our headquarters. With investments of more than €100 million, we support long-term growth by increasing global shipping and storage capacity by 40% in medium terms. Now before handing over to Yves, let's quickly touch on our digitalization initiatives. Since the introduction of CLAIM 5, we meaningfully digitalized our business activities from digital trend dedication and product creation to AI-enabled pricing, digital showrooms and innovative digital marketing. Our HUGO BOSS Digital Campus is at the heart of this journey. It further expands our digital capabilities and provides meaningful insights as well as efficiencies along the value chain. In addition, in 2023, we further pushed ahead with our important Digital TWIN initiative. By harnessing the power of data, we will be able to better align our various planning activities and drive additional efficiencies in the years to come. This, ladies and gentlemen, concludes my review of the past fiscal year. As you can see, the execution of CLAIM 5 is in full swing and has once again enabled us to make further progress. After a successful period of brand renewal and market share gains, our business platform will now allow us to put an even stronger focus on operational execution. This, in turn, will drive further effectiveness and efficiencies and is all the more important as we keep navigating a period of heightening macroeconomic volatility. And this -- and with this, I am now handing over to Yves, who will elaborate on operational and financial developments. Yves, over to you.
Yves Muller: Thank you, Daniel, and also from my side, a warm welcome to all of you. In the next 20 minutes, I will guide you through our 2023 operational and financial performance before outlining in detail our expectations for full year 2024. Let's kick off with a closer look at our top and bottom-line performance in the last fiscal year. Thanks to the determined execution of CLAIM 5, our revenues grew remarkable 18% to €4.2 billion. This equates to record sales for our company. Equally as important, we recorded significant bottom-line improvements with our top line performance more than offsetting further investments into the business. Overall, EBIT surged 22% to an amount of €410 million, which led to an increase in EBIT margins of 60 basis points to 9.8%. Bolstered by a robust final quarter, we ultimately achieved our full year 2023 targets, which we have revised upwards twice during the year. This is all the more remarkable considering the high level of macroeconomic and geopolitical uncertainty, which increasingly weighed on consumer sentiment. So let's delve deeper into our top line performance, starting with our brands. Fueled by several brand and product initiatives, both BOSS and HUGO experienced double-digit growth, thereby further expanding market shares worldwide. Revenues for BOSS Menswear grew 16%, while our BOSS Womenswear business grew by as much as 24%. HUGO also followed suit with strong growth of 22%. What strikes me most is the fact that growth was once again well balanced with double-digit improvement across all wear and occasions, showcasing our success in fortifying our 24/7 brand images. Equally important, all regions contributed by posting double-digit sales improvements. With revenues up 23%, momentum in the Americas remained strong throughout the year with all key markets continuing the double-digit growth trajectory. This performance is a direct consequence of our enhanced brand perception in the important U.S. market and it reflects strong progress made when it comes to further expanding our presence in key department stores, resulting in further market share gains. As a result, we have already achieved our 2025 revenue ambition for the Americas of around €1 billion, two years ahead of plan. In EMEA, revenues expanded by 13%, fueled by both local demand as well as a pickup in business with international tourists. Momentum remained solid in key markets such as Germany and France, while we recorded particularly strong growth in emerging markets, including in the Middle East. To finish off on our regions, revenues in Asia Pacific strongly accelerated in 2023, expanding 32%. This reflects both the stellar performance in Southeast Asia Pacific, including strong double-digit growth in Japan as well as a notable recovery of our business in China. In addition to robust improvements in Mainland China, our business in Hong Kong and Macau also recovered, reflecting the gradual pickup in tourism. Let's conclude on our top line with a quick look at our channels, all growing double-digit in 2023. Sales in brick-and-mortar retail grew 15%, largely driven by comp store sales increases as well as a moderate impact from space expansion. Brick-and-mortar wholesale revenue grew 18%, fueled by the continued strong reception of our collection among wholesale partners. Also, the expansion of our franchise business contributed to growth as we added around 50 full-price franchise stores in 2023 with more to come going forward. Lastly, our digital business successfully continued its double-digit growth trajectory, with sales up 26%. This reflects double-digit increases at hugoboss.com and notable improvements in our digital partner business. With this, let's now turn our attention to the remaining P&L items. At 61.5%, our gross margin came in 30 basis points below the prior year level. Gross margin development in 2023 was, first and foremost, supported by the gradual normalization of global freight cost levels, including a reduction in the share of air freight. However, these positive factors were somewhat counterbalanced by higher product costs, unfavorable currency fluctuation and negative channel mix and an increasing promotional environment towards the end of 2023. Speaking about the gross margin, let me be very explicit in saying that we remain fundamentally optimistic regarding our future gross margin opportunity. Between now and 2025, we continue to forecast our gross margin to range between 62% and 64%, primarily reflecting anticipated efficiency gains in our global sourcing activities; something I will elaborate in just a few minutes. We now move over to operating expenses, which were up 13%. This development was driven by higher fulfillment, variable rental and payroll expenses in the light of the strong top line momentum as well as our well flexed investments into the business. The latter also includes our comprehensive market investments, up 14% year-on-year, thus maintaining a consistent level of just under 8% of group sales. Overall, and supported by our top line development, we successfully reduced operating expenses by 90 basis points, bringing them down to a level of 51.7%, which is well below pre-pandemic levels. This achievement was mainly driven by further efficiency gains in brick-and-mortar retail, down 140 basis points year-on-year and 500 basis points compared to [2019]. Consequently, our EBIT experienced a robust increase of 22%, resulting in an EBIT margin expansion of 60 basis points to a level of 9.8%. Finally, net income after minorities grew 23%, translating into earnings per share of €3.74. Let's now turn to the balance sheet, starting with inventories, which increased 11% currency-adjusted. As in previous quarters, the vast majority of our inventories comprises core and fresh products for current and upcoming seasons. This being said and with measures in place to optimize inventory levels going forward, we recorded the first noticeable decrease of inventories in Q4, down 8% compared to the previous quarter. Also as a percentage of group sales, inventories have seen a considerable improvement quarter-on-quarter, coming in at 25.4%, plus almost 300 basis points below the levels seen in Q3. This progress fully aligns with our midterm ambition of reducing inventories to below 20% of sales by 2025. This brings me to trade net working capital with a moving average of the last four quarters adding up to 20.8% of group sales. Besides the somewhat higher inventory levels during 2023, this also reflects an increase in trade receivables following our strong wholesale performance as well as somewhat lower trade payables. Going forward, and supported by the optimization of inventories, we remain confident in our ability to improve this ratio towards our midterm target corridor of 16% to 19%. We anticipate the first progress already this year as we aim to approach a level of 20% in 2024. Moving over to CapEx, up 55% to a level of almost €300 million with a clear focus on enhancing our global store network, further digitalizing our business model and strengthening our logistic capacities. Last but not least, free cash flow amounted to €96 million as improvements in EBIT were more than offset by the increase in trade net working capital as well as our deliberate step-up in CapEx. Speaking about free cash flow, let me clearly emphasize that we are fully committed to reaccelerating cash flow generation starting already this year. In view of our strong operational performance in 2023, our very robust financial stance and our confidence in our long-term growth opportunities, we will propose a dividend of €1.35 per share for the fiscal year 2023, up 35% versus the prior year period. This represents a payout ratio of 36%, that's fully in line with our target payout range of 30% to 50%. With this, ladies and gentlemen, let's now take a closer look at our expectations for 2024 and its implications on our midterm financial ambition. As Daniel elaborated on in detail, after more than two years of successful strategy execution, we are operating on a significantly stronger foundation, enabling us to drive sustainable and profitable growth in the years to come. We remain fully committed to rigorously executing CLAIM 5, even more so as the macroeconomic environment is likely to remain challenging for the time being. Being on our regained brand momentum, we are convinced that our brands have everything it takes to continue the growth journey, in particular, as we aim to gain further market share also in the current fiscal year. Altogether, we are forecasting group sales in reporting currency to increase within the range of 3% to 6% in 2024. And while Daniel already pointed out that our guidance may appear somewhat conservative at first glance, there are good reasons to remain vigilant. And let me be very clear. The last thing we want to do is promising you something we cannot deliver. So why are we guiding the way we do? In the second half of 2023, we have experienced a further deterioration of the macroeconomic and geopolitical environment. Most importantly, we have seen inflation cooling more slowly than expected and geopolitical tensions in the Middle East mounting up. This adds to the already high levels of uncertainty and weighs further on global consumer confidence with individual markets being affected in different ways. On the one hand, we are seeing consumers keeping up relatively well in markets such as the Americas, Japan, the Middle East and Southeast Asia. On the other hand, consumer confidence in key European markets, particularly in the U.K., remains weak. On top of that, China's economy is still struggling to regain its prior momentum with consumer confidence hovering around its all-time low. This limits the upside in the strategically important market in the short term. So clearly, in our sales outlook for 2024, we have taken a rather cautious stance on the macro backdrop, factoring in the various uncertainties. This being said, it goes without saying that all of these aspects have upside potential if they improve faster than expected. Yet, there remain question marks for the time being. The varied landscape is also reflected in our regional sales forecast. More specifically, we expect sales in EMEA to grow in the low to mid-single-digit range, while revenues in the Americas are forecasted to increase at a mid- to high-single-digit rate. For Asia Pacific, we are confident in achieving high-single-digit to low-double-digit growth in 2024. Now let's take a look at what this implies for our 2025 top line and bottom-line ambition. The ongoing uncertainty regarding the macroeconomic and geopolitical landscape and the corresponding weak consumer sentiment might, in fact, cause a slight delay in achieving our 2025 sales ambition of €5 billion. Importantly, this does not change our firm belief in CLAIM 5, nor the fact that we will reach €5 billion turnover, even if it may take a little longer. Quite the opposite, we continue to fully believe in the mid- and long-term potential of our business and will follow our route in the most diligent manner. And while we remain somewhat cautious when it comes to our revenue expectations in 2024, we are all the more confident with regards to our future bottom-line development. We continue to take notable profitability improvements as we expect EBIT to grow faster than sales also in the coming years. Today, we are, therefore, confirming our ambition of achieving an EBIT margin of at least 12% by 2025. Already for the current year, we expect robust earnings growth. We aim to improve our EBIT by between 5% to 15% to a level of around €430 million to €475 million in 2024. This means that our EBIT margin is set to expand further this year to a level of between 10.0% and 10.7%. Now what makes us so confident? Over the past 2.5 years, we have significantly invested into our business. We strengthened our brands and products, strongly elevated customer experience, invested into our digital capabilities and expanded our production and logistics footprint. In doing so, we have built an important organization and operational platform for future top and bottom-line improvements. While we keep on investing in our organization and our people, more importantly, we will capitalize on our robust foundation and make use of our increased operational flexibility to realize efficiency gains from hereon. In 2024, above all, it is our gross margin that will support our bottom-line performance. In this context, we remain fully committed to our gross margin ambition of 62% to 64% between now and 2025. Already this year, we will start benefiting from the ongoing optimization of end-to-end operations activities. In particular, we are taking efficiency gains by leveraging our global sourcing activities and enhancing effectiveness. This includes achieving greater economies of scale, while at the same time, further optimizing vendor allocation and freight costs. The latter will help us in significantly reducing the air freight share compared to previous years. This, last but certainly not least, we also expect lower product cost levels in 2024, following a decline in commodity pricing. Also contributing to our 2025 bottom-line ambition will be our ongoing commitment to further optimizing our fixed cost base. In particular, we will further enhance cost efficiency in brick-and-mortar retail, where we have already achieved notable improvements as part of CLAIM 5. Also in our headquarter functions, we see potential to leverage our platform approach. This includes, among other things, the reduction of overall collection complexity as well as a constant review of marketing effectiveness together with a diligent review of admin expenses. Before I hand the floor back to Daniel, who has concluding remarks, I'd like to revisit the topic of free cash flow. As mentioned earlier, we are fully committed to accelerating our cash flow generation. Over the past two years, the temporary increase in trade net working capital levels and heightened investment activity impacted our cash flows to some extent. Looking ahead, and in addition to the anticipated top and bottom-line improvements, we expect the optimization in trade net working capital as well as our persistent focus on maximizing CapEx efficiency to fuel cash flow generation. Consequently, we anticipate that starting with the 2024 fiscal year, our free cash flow will improve to a level of around €500 million. This aligns with our overarching midterm goal outlined in CLAIM 5. And with that, I now hand over to you again, Daniel.
Daniel Grieder: Thank you, Yves. Ladies and gentlemen, before we start with the Q&A session, let me briefly wrap up with, our CLAIM 5 strategy is in full swing. Today, we are operating out of a position of strength. BOSS and HUGO are stronger than ever before. Our broad-based growth journey until here underpins the potential that lies in our strategy across brands, consumer touch points and geographical areas. Exploiting these opportunities in 2024 and beyond is and will remain the top priority for us. Most importantly, we have built a strong, resilient operational platform, and we will leverage this platform from here to accelerate efficiency, effectiveness and profitability. We are fully committed to generating our top and bottom-line improvements in the years to come. Personally, I look forward to continuing this journey together with my two fellow board members, Yves and Oliver in the coming years. Together, we will ensure the consistent execution of CLAIM 5 also going forward and thus contribute a long-term business success. And with this, let's now move over to the Q&A session.
Operator: [Operator Instructions] The first question comes from Grace Smalley from Morgan Stanley (NYSE:MS).
Grace Smalley: It's Grace Smalley. So I think you said limit to two questions. So my first one would be on the 2025 revenue guidance. So on your comment now that the €5 billion could be slightly delayed, could you maybe just help us with what has really changed here relative to your Investor Day last June, maybe touching on kind of your underlying assumptions and whether currency has also played a role here? And then related to that, what do you now see as a reasonable range of possible outcomes to revenues in 2025 and whether we should expect this to be kind of materially lower than that €5 billion? Then my second question would just be on margins, Yves. So you made it very clear that you remain optimistic about gross margin and that you're still happy with the 62% to 64% guide, mainly driven by the sourcing efficiencies and your product costs. I guess, could you just help us with what sort of level of gross margin you do expect to reach in 2024? And within this, what you're assuming for the impact on promotions, which were clearly a drag in Q4 and how much buffer you have in your margin guide for promotions in 2024 and how that will evolve as we move from the year because it still seems quite promotional as we sit here today?
Daniel Grieder: Okay. Thank you, Grace. I'll start with the first part of your question. So with CLAIM 5 strategy in full swing, we are operating out of a position of strength. Our brands are stronger than ever, our product offering is clearly enhanced over the past years. We significantly improved also the customer experience at the point of sales, and we have built a strong and resilient operational platform, as I mentioned. So I would like to clearly state now that we are only taking a more cautious stance on the macroeconomic picture for 2024, not on the power of CLAIM 5 nor on the potential of our brands. We will reach the €5 billion, and we said it's slightly delayed, and there we talked just about a few months and not more.
Yves Muller: Yes, Grace, thank you very much for your second question. Let's talk about the operating margins. So clearly, what we said today is that we reconfirmed our at-least 12% operating margin, clearly, point one. We see, as we -- as you already indicated, we see good potential to improve our gross margin improvement. We are guiding for 2024 and 2025 in the range between 62% and 64%. As you know, we finished the year by 61.5 percentage points. So there's already kind of inherent uplift in there. We have made big improvements in terms of sourcing efficiency going forward, and we have certain visibility for the next six to nine months. So we feel quite confident in improving our gross margin from this point of view. Clearly, you highlighted the promotional activity. I mean, the season from Q4 is -- was also continued because that was the winter sale in the beginning of Q1 as well. We see a heightened level of promotional activity, but clearly, we do less discounts and promotion in comparison to our competition. I think this is clearly worth mentioning because of the strength of our both brands, BOSS and HUGO. The other thing I want to highlight is that we see further improvements in terms of operating leverage on the fixed cost side. So we will further continue to achieve operating leverage when it comes to brick-and-mortar retail. I think we have made great strides since the beginning of CLAIM 5. We have now almost 500 basis points in improvement -- brick-and-mortar retail cost in percentage of sales. We see further -- after we have introduced those brand lines, BOSS Camel and HUGO Blue, we are assessing the issue of collection complexity. So we clearly want to decrease our collection complexity going further, and we see more operating leverage coming into admin expenses. So you see here what we are trying to convey. So there is a focus on operating margin. So since the visibility on the top line is somehow slow or lower because of the macroeconomic uncertainties, we focus on those things that we can control internally. So we clearly control the sourcing environment, by the way, without compromising of quality. So this is always for HUGO BOSS a given. And we will focus on cost efficiency because we can control this. And I think if -- we have certain assumptions, I mean you -- everybody -- if you're reading the reports, everybody is saying the first half of the year might be more difficult, second year might be better, but there are clear assumptions, there might be some assumptions that top line might improve over the course of the year. But clearly, I think we have to manage what we can control internally, and we will do so to ensure our path to an operating margin of at least 12%.
Grace Smalley: Just to follow up, it's a very detailed answer, but just to follow up on the revenue side, just to understand, given your more cautious view on the macro and the comments you've made, is that just like conservatism as you look ahead? Or are you already seeing kind of a weakness in your current trading and your wholesale order books today?
Daniel Grieder: So as we said, there is no doubt that we're going to reach the €5 billion. And if we look also on the first two months of the new year, we are in line with our expectations. And so therefore, we are full on track and we also believe that -- as Yves already said that the second part of the year might ease up.
Yves Muller: And actually, as far as order intake is concerned, we are satisfied with this. So we are growing in line with our own expectations and plan. And actually, with this being said, you know the market, this means that we are currently, as well with our wholesale partners, we are gaining market shares.
Operator: The next question comes from Anthony Charchafji from BNP Paribas (OTC:BNPQY).
Anthony Charchafji: This is Anthony Charchafji from BNP Paribas Exane. I will stick to 2. So the first one would be on the initial guidance, I mean, between 3% to 6%. It's -- I understand that you want to be conservative on the initial guide. But really, this 3%, I mean, do you have any price increases in mind for the year and also the addition of HUGO Blue, I mean I understand that it can maybe represent €50 million this year. So it might be a 1% incremental growth. So here goes the 3% just with that. So if you can help me with that? And the second point would be more again on the gross margin and the EBIT level. So basically, if you expect 90 bps improvement in 2024, I mean looking at the gross margin tailwind that you can have despite the promotional activity, I mean, with the lower product cost and the efficiencies, I mean, it seems that you can easily get to -- and also some freight, sorry, you can easily get to maybe 100 bps improvement in 2024. So that would imply operating deleverage. So maybe if we can -- if you can help me more to understand that part, that would be helpful.
Daniel Grieder: Yes, Anthony. I'll take the first part of the question regarding the sales guidance. It's, of course, too early in the year to see what's coming. But yes, we want to just be cautious, but we see really growth opportunity in all business areas. So if I start with the brands, as you rightly said, in HUGO Blue, there is potential to grow, and we just integrated that into the market. Actually, we delivered it the first time into the stores. And the response so far is very positive. But also in HUGO, we have potential with Camel with all the sublines we have in place also with accessories and shoes. There is indeed a lot of opportunities where we can grow. If I go to the regions, and that's the good thing, also there, we see a good potential, especially at the moment in Americas because we are getting a 24/7 lifestyle brand. And there is a lot of -- we have seen opportunities. That's the reason why Americas also got the #1 country for us. Where we see in the region a bit more of a headwind because of the macroeconomic situation is in Europe, mainly in Germany because of the department issues -- that department stores issue that are currently there, which is a bit unclear. Can you still hear me?
Anthony Charchafji: Yes, we can hear you, yes.
Daniel Grieder: The department stores and then you have the U.K. situation that where the consumer sentiment is under pressure. These are slightly situations that we have to deal with. But then you go into Asia where you see good results in Asia Pacific and just flat growth more or less in China. But when I really go -- and then I actually want to add also the distribution channels where we have potential everywhere to grow. And therefore, we have really a lot of opportunities and potential to grow in brands, in the region and distribution channels. But again, as Yves also said, it's not in our hands going forward at the moment to have this crystal ball, how it's going. But internally, we are well geared up. We are well in position. We have a strong foundation to continue to grow the business, but we just want to be careful. Yves, can you answer the second one?
Yves Muller: Yes, Anthony, are you still there because we had some issues technically here. Anthony, are you still there?
Anthony Charchafji: Yes. I'm still there.
Yves Muller: So let's -- so if you look at our top line guidance between 3% to 6%, by the way, in reported currencies, we didn't include any price increases, just to accomplish or finalize the comment over there. If you come to a kind of -- if you have a lot of external factors on your top line side where you have macroeconomic uncertainties, I just want to convey the message that we, as a team, we try to act as an entrepreneur. And of course, you have to control your cost position. So you have certain expectations regarding your top line. And as an entrepreneur, you always try to ensure that your cost is increasing at a lower pace than your net sales. So this is what we are clearly sending the message that on the fixed cost side, we are striving for more efficiencies to ensure that we achieve operating leverage as well on the fixed cost side. And on the gross margin, as you rightly said, we have clearly the visibility of product cost, sourcing efficiency, freight costs and all this. I think the big risk there is overall the promotional environment, how long it will prevail, how long it will take, but there might be some upside risk if promotional activity is not as much as perhaps everybody is expecting. So this is the back and forth. But we are actually, from the margin perspective, firing out of both cylinders. We are working on the internal issues to improve our gross margin positioning as well as we have a lot of initiatives, by the way, in place to elevate our brand and to expand gross margin. And at the same time, we are focusing on our fixed cost bases to ensure that the cost increase that is coming from the cost base is lower than the net sales improvement. And if by coincidence, the top line improvement will be coming, there might be some upside risk. This will help us as well from operating margin improvement side.
Anthony Charchafji: Okay. Just if I may have a quick follow-up. So it's very clear on 2024. And again, I understand you are being cautious due to the macroeconomic environment, but it's also -- I think it's also too early to weigh in on 2025 on top line if it's just due to the macro environment because if, let's say, we get to the high end of your EBIT guide at €475 million, and we do plus 15% like you guide this year, I mean, and we keep 12%, it means that the top line for 2025 would be closer to €4.6 billion rather than the €5 billion. So just so I don't have a wrong number in mind for 2025, I mean can you maybe guide us a bit better on 2025 top line?
Daniel Grieder: As always, it could turn out to be stronger if the macroeconomic and environment lightens up. We don't know. And as I said in the beginning, we're going to reach the €5 billion, and we said there is slightly a delay. And there's no doubt, there's nothing in between, there's nothing wrong, there's no anything where we are worried. It's just that part that is not in our hand. And where we're going to turn out in 2025, there's still a big potential that we hit the €5 billion. And that's what we go for. But we are just -- I would say that, be ready also if things going wrong out there or war in another world is happening or whatever the geopolitical situation is getting worse, there might be just a risk, but we still aim to go for the €5 billion, that's clear.
Christian Stohr: Thanks, Anthony. And maybe we'll stick to the two questions from now on because we still have a few people in the queue. So far, we had three per person. So let's continue. Manjari, you're next, please stick to the two questions. Manjari Dhar RBC Capital Markets, Research Division – Analyst I'll stick to the two questions. My first question is just on the wholesale business. And how much of wholesale growth is now coming from the new space [Angolan], the space in department stores? And how much do you think there could be to still come through from that? And then secondly, just on the gross margin, Yves, I wondered if you could quantify perhaps some of the moving parts for the gross margin that we saw in Q4.
Yves Muller: So regarding the gross margin in Q4, perhaps I'll start with this. You have seen actually that was the quarter where we actually overachieved the prior year. So clearly, we had a lot of tailwinds coming from freight. And on the other side, it was counterbalanced by this promotional activity. But finally, the -- overall, the gross margin was improving over last year. And there has been also some product costs that were a little bit elevated in Q4 that were somehow reducing the positive freight cost effect.
Daniel Grieder: Regarding the business, as you have seen, the growth is coming from all the channels. We grew -- if you look on the wholesale business, we grew 8% -- 18% last year. We gained market shares. We increased our space in all the distribution that we have on the wholesale. We have increased sell-through because our product has a good price value and as the forward order, Yves mentioned before, is totally lined -- in line with our expectation, so also the wholesale business so far is, for our brand, still growing even with this macroeconomic environment that is happening, but we are still satisfied with our plans, our -- so far in this year, the results, and forward orders going forward. So still stable.
Operator: The next question comes from Zuzanna Pusz from UBS.
Zuzanna Pusz: I'll stick to 2. So maybe -- sorry to follow up once again on the gross margin. But I was wondering if you could just, I don't know, try to contextualize maybe a little bit sort of the specific building blocks. I mean you've given us quite a bit of color, but maybe more in terms of quantification because where I'm coming from is the fact that I think it's very clear, your brand is outperforming and the brand is doing phenomenally well, and the strategy is working. But when you talk about the top line, you decide to be a bit more cautious because you recognize the fact that the industry context is tricky and it's macro. And it feels to me like you take it into account when it comes to top line, but I'm a little bit worried that maybe it's not necessarily accounted for when it comes to the gross margin. Because if you look over the past three years, the gross margin has been basically flattish despite the brand doing very well. And that's because there's been lots of promotions and there's been more -- you still have quite a bit of inventory on your balance sheet to work through. So I wanted to understand, is it -- am I looking -- seeing it the wrong way? I feel like, when it comes to the top line, you rightly so chose to be very cautious because of the external factors, but at the same time, the gross margin improvement, I don't know if it really sort of recognizes that. So yes, I trust you're confident in the outlook, but if you could tell us specifically what is the ABC and sort of specific basis points drivers of the gross margin to get to that [62%, 64%], given still the inventory of the balance sheet and the promotional environment. So sorry, that's a bit long one, but it's a one question. And then secondly, specifically on China. I think you've commented that China is flattish. Again, I think that's been a region where, obviously, because of COVID you've been -- the recovery has been lagging a little bit. So can you tell us more or less, what are the pockets of weakness? Is it the category? Is it just consumer in general? And are you 100% confident that it's sort of market-specific? Or do you think maybe the consumer would -- may need a little bit more time to understand sort of the brand strategy? I just -- I'm not questioning it. I just want to get a confirmation on that because there's been very mixed messages from various companies on China. So I think we are all a little bit sort of confused.
Yves Muller: So Zuzanna, perhaps I'll take the first question, so regarding the gross margin. So as you -- perhaps I need perhaps a little bit more stats here. So first of all, when we started the journey of 2025, and as you know, as we start -- when we started the CLAIM 5 journey, we compared it always to the year 2019 actually, that was the year pre-COVID where the gross margin was still at 65%. And where we started the journey of CLAIM 5, where we deliberately said we want to invest into the product and into the quality of our products, we did this, we did this together with a lot of brand investments, with a lot of product investments. And Daniel and myself, we are very much sure that we today have the best price value proposition when it comes to our products. We really invested into the products. With this, initially started our CLAIM 5 journey, we said we're going to achieve a gross margin between 60% and 62% factoring in all these kind of quality investments that we were doing. Now, since the brand refresh and the full price sell-through and the brand elevation was really a kick-start by executing our strategy. We lifted our gross margin guidance back in June last year, where we said, no, we don't go for 60% to 62%, we're going to achieve 62% to 64%, which is like an increase of inherently 200 basis points because we see that the full price sell-through is coming through, we see actually that the brand is doing nicely, that the marketing spendings are paying off that we can elevate our brand. So this was really overall helping us. Now if you start now the year today with 61.5 percentage points were -- in the year 2023, now we are guiding between 62% and 64%. And now I leave it actually to your own imaginations. And there are clearly a lot of tailwinds now when it comes to product costs, when it comes to sourcing efficiency because we are today a company with more than €4 billion net sales. When we started CLAIM 5, we were at €2 billion. So you have volumes effect, you really start -- you really see that efficiency is kicking in. You see an industry that is actually destocking. So you have -- it's a kind of buyer's market when it comes to sourcing. So you see a lot of -- and last but not least, you see freight costs, especially air freight, so ship modes, which are really overall helping us. So these are, from my point of view, Zuzanna, is kind of self-help opportunities, which come into the business once you scale your business. And I think this gives us -- makes us confident that we will improve our gross margin. On the other side, you have this kind of risk of promotional activity, how fierce it is, how long it will prevail. And this is actually the headwind that might be in our gross margin. So these are the big unknowns that are in the market. But overall, let's reconfirm that we see the guidance between 62% and 64%.
Daniel Grieder: And I will answer on the second question regarding China. As I said, it remains a bit flattish if you compare it to last year. So overall, we have observed a similar performance as compared to last year. While we have seen an improvement on domestic and international tourism, the overall recovery around the consumer spending for fashion and apparel continues to recover somewhat slower than anticipated because also you see a trend that consumers are spending and focusing more on the payment. So the consumer sentiment, if I would say, is maybe a bit weak. On the relative basis, our brand is doing well there. So we're investing in new opportunities there because we also continue to open brands. So I think this is just a bit slow. It's nothing to worry, it's nothing to change and just continue what we are doing because, as I said, the brand is performing well where we are in.
Zuzanna Pusz: That's very clear. Yves, sorry, just to follow up. That was a very helpful answer. But just kind of if I look at the slide, which shows sort of the gross margin bridge between 2022 and '23 and if I were to imagine that for 2024, am I right that you are assuming that freight cost and product cost benefits would be together over 100 basis points, so they can compensate for the negative strong promotions? Is that correct? Is that your assumption now for this year?
Yves Muller: I can follow your argumentation.
Operator: The next question comes from Frederick Wild from Jefferies.
Frederick Wild: First, on current trading. You say that the first couple of months of the year are trading in line with expectations. Is that trading in line with expectations consistent with the 3% to 6% growth? And when you think of it from the full year perspective, does that guidance include an increase in macroeconomic pressures or they just remain consistent? And does it anticipate an increase in promotional intensity? And then secondly, for Daniel, it's just more of a sort of strategic question. It seems -- yes?
Daniel Grieder: [Technical Difficulty] couldn't understand you. So there was -- we couldn't understand your point.
Yves Muller: Can you repeat? I guess, the question is on current trading and -- but, please, can you repeat it?
Frederick Wild: Yes, of course. So it's about the current trading. The first two months of the year, you said was in line with your expectations. I just want to make sure that that's in line with expectations for 3% to the 6% full year growth and whether that full year growth forecast anticipates a consistent macroeconomic environment from here on out or whether it anticipates the macro environment deteriorating and whether you anticipate promotional intensity increasing through the year? And then secondly, a sort of more step-back question for Daniel. It seems to be clear that you're sort of prioritizing margin delivery over sales delivery and that you obviously had the opportunity to invest more gross margin in promotions and pricing, et cetera, in order to maybe elevate the sales, but you haven't chosen to do that. Is that the right way to think about how you are managing the business going forward?
Daniel Grieder: First question, current trading. You can also say we said it's in the expectation, but it's the same, I would say, as we planned. So we are completely in that -- in where we need to be to reach our results. So -- and that, I want to underline that the growth is coming, also current trading, in all the brands, in all the regions and also in all the distribution channels. So it's really, at the moment, as we say, expectation, but you can also say as planned. The second question is, yes, we talk about maybe we should focus more on the bottom-line for the next -- for this and the next year because, first of all, I want to say, we are two years ahead of our sales target because we said we're going to reach the €4 billion in 2025. But actually, we reached it already this year. So we are two years ahead of -- with our sales target. Therefore, we clearly want to focus now on the bottom-line and getting more effectiveness, efficiency and profitability into it with the platforms we have, with the initiatives we already started, which we are -- which we started at the same time and which we focus and, as Yves said, to getting more efficient in all the platforms, no matter if it is product, no matter it's the vendors, no matter it's more effective in marketing, that doesn't mean we go completely on a break. We continue to expand. We continue to optimize everywhere our business. So there's no question. We continue to grow. We continue to be more effective, efficient and profitable going forward.
Frederick Wild: And just on those questions asked about the -- whether your guidance anticipates further macro pressure and promotional intensity as things stand?
Yves Muller: I think, Freddie, we have taken a cautious view on our assumptions and I would leave it with this. And yes, everything has been said so far from my point of view.
Operator: The next question comes from Thomas Chauvet from Citi.
Thomas Chauvet: I have two questions. The first one for Daniel, on the casualwear market. So your revenue growth guidance, 3% to 6% this year, doesn't it suggest the same kind of outperformance and market share gains that you've had in the past couple of years? I mean a number of your peers will grow around 5% this year. I guess it's fine to grow in line with the market, but are you observing some noticeable changes in the casualwear market dynamics, whether some specific competitors, big or small, are coming back, maybe a change in consumer taste or whether slightly different aesthetics, different price points? Anything else you want to highlight would be useful. And secondly, on the growth equation between volume, price and space, maybe for Yves, you increased your square footage by 5% last year. I assume that's a fair assumption for this year as well. Could you confirm that? And in each case, with no pricing, that would imply volumes flat to slightly down year-on-year. Is that a fair assumption? And would the volume pressure be mainly in Europe and which countries in Europe worry you the most for the year ahead beyond maybe the U.K.?
Daniel Grieder: Thank you, Thomas. No, we -- the CLAIM 5 is fully in swing, and we continue to becoming a 24/7 lifestyle brand. So if you remember in the beginning or in the past, we were more a suit company, and we added in the 2.5 years, and as a part of CLAIM 5, we added a broader collection that also includes a 24/7 lifestyle offer. And as you can see with that, we gained shares, we gained space in the distribution, but most importantly, we gained market share. So our strategy that we clearly defined in CLAIM 5 has shown in the past 2.5 years that our product offer also with the sub-brands, bringing back BOSS Orange, bringing back BOSS Green and pushing also Womenswear, helped us clearly to get more space and gain market shares.
Yves Muller: And Thomas, regarding your second question, I can clearly confirm that the volume should grow. As you can -- especially in retail and wholesale, by the way, I think your question was dedicated to retail. As you might have seen, we guided at our last CMD to have like around-ish 500 free-standing stores. We have now 489 by year-end. You see that actually there is limited space growth coming from retail. There might be some shop-in-shop here and there. But actually, there will be volume growth coming.
Thomas Chauvet: And compared to the 5% square footage growth you had last year, so what would be a good guidance for this year?
Yves Muller: Very slightly, Thomas. Very moderate.
Operator: The next question comes from Jurgen Kolb from Kepler Cheuvreux.
Jurgen Kolb: Two questions on -- around the order book again, sorry. Could you please give us a little bit indication how the order book is building over the course of the year? And how much transparency you have until, let's say, the fourth quarter at this point in time? And are you noticing that your retail partners want the merchandise shipped earlier? Is there anything -- any trend that you're seeing in the behavior of the wholesale partners? And what was the fill-in demand or the in-season order pattern in Q4? And are you seeing any indications for the first quarter at this point in time? And the second question, relatively easy. In terms of gross profit margin, what's the share of air freight that you currently have vis-a-vis last year? And where do you think this level can go in the current year?
Daniel Grieder: So on the -- thank you, Jurgen, for your two questions. Talking about the wholesale, so we just have finished the delivery for August and September in the wholesale delivery. And we clearly could see a positive spin on demand of our product because of -- and that's very important, they had until now very good sell-through. So they clearly see the improved quality, the better price value in our product. And therefore, the order base is continuing to grow. So that is very stable and very good for us and shows that also with all our sub-brands, we are offering to our consumer a very good possibility to further gain space in all the department stores. Now in terms of delivery, as you remember, we came out of a bit challenging situation on the supply chain after the corona, that a lot of companies, including us, we were a bit delayed with our deliveries, but that has completely changed. We are on time. And it's still the same, the earlier you can deliver, the better the sell-through is. We also went into a much more balanced offer during the year, so more into see now buy now products so that we don't deliver too early, which is also not good for the customers. But we delivered and with our new strategy in supply chain and our Digital TWIN where we have full transparency on deliveries, we made a big improvement on on-time deliveries of our four windows of deliveries. And that has been very well received by our customers so far.
Yves Muller: Yes. Jurgen, regarding your second question that was related to the air freight share in the year 2023 and how it will improve over the next years. So what I can say that in the year 2023, we were on an average at high-teens level air freight share. And our own ambition is to be at a high single-digit rate by the year 2025. So this is actually a constant improvement that we're going to see, but this is the improvement that we overall expect.
Operator: The last question for today comes from Michael Kuhn from Deutsche Bank (ETR:DBKGn).
Michael Kuhn: First question on cash flow guidance. You come from a level of around about €100 million. You're guiding for €500 million this year, so plus-EUR 400 million year-over-year with operating results based on the guidance, roughly up [50] and with CapEx at least stable year-over-year, rather somewhat up. That would imply something like €300 million improvement from working capital, but that is not in line with the working capital as a percentage of sales guidance. So could you give us some rough building blocks on how you derive the €500 million free cash flow guidance?
Yves Muller: Yes, I can give you this, Michael. So first of all, in our cash flow was -- in 2023 was negatively influenced actually by the trade net working capital. In 2024, it will be positively influenced by the trade net working capital. This puts you actually into a kind of positive swing. And by the way, the trade net working capital guidance is always based on the average of the last four quarters. So you have a kind of, let's call it, balance sheet effect with the free cash flow coming in faster than actually this slow moving average of the trade net working capital [negative] guidance, if this makes sense. So the big swing item will be coming from negative trade net working capital in '23 to positive in 2024.
Michael Kuhn: Excellent. The second one, you mentioned the difficult situation with German department stores. Obviously, a couple of companies, a couple of houses in insolvency proceedings there. How do those clients currently behave? And how do you behave in terms of asking for prepayments? Or what are the business terms with those companies currently?
Daniel Grieder: So we are in very close contact with all these customers. And it's -- those where is a risk, we clearly go to prepayments where we see a risk. But there, we measure and we are very on it on the business from -- in every situation, have a close contact. And we absolutely do not want to go into any risk. We are trading there where is a risk, but only with prepayments we act. So, so far, we haven't got any bad experience because we measure the business and we drive the business very close with all this where the risk is high.
Christian Stohr: Perfect. Thank you, Daniel. Thank you, Yves, and thank you, Michael, for asking the last question. I realize there is more people still in the queue that wanted to ask question. As always, we will reach out to you proactively during this afternoon. And with this, ladies and gentlemen, we conclude today's conference call. So if you have any follow-up questions, please reach out to the Investor Relations team, and wishing you a great rest of your day. Thank you for dialing in. Bye-bye.
Operator: Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
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