Letter to Shareholders
For HUGO BOSS, 2020 was undoubtedly a challenging year. Also for our company, the pandemic has caused an unprecedented and exceptional situation. After a very encouraging start to the year, the rapid spread of COVID-19 led to a significant impact on our business, in particular as the vast majority of our global points of sale were affected by temporary closures. In addition, large-scale restrictions on public life, vital social distancing measures and international travel restrictions weighed on consumer sentiment and buying mood, thereby putting a significant strain on our financial and operational performance. In this context, it is all the more important that we made further strong progress in executing our strategic initiatives also in the past year. We succeeded in further increasing the desirability of our two brands BOSS and HUGO and in aligning our diverse product range even better with the needs and wishes of our customers.
Above everything and most importantly: at any point in time in 2020, we have fully lived up to the corporate responsibility of HUGO BOSS. The health and well-being of our employees, customers, business partners and shareholders have always been our top priority. From the beginning of the pandemic, we acted quickly and decisively, enabling our global administration workforce to work remotely from home. We also implemented comprehensive social distancing and hygiene measures to guarantee all employees in manufacturing, logistics and retail the safest working environment possible. Last but certainly not least, and in order to protect the health and well-being of our shareholders, our Annual Shareholders’ Meeting last year was held as a completely virtual meeting for the first time in our company history. It was equally important to us in 2020, to make a social contribution, especially in these difficult times. In this context, during the first peak of the pandemic, we temporarily switched our production sites in Germany and Turkey to the production of face masks and PPE, and donated these to public institutions right after.
We also took all the necessary steps to secure the financial stability and flexibility of HUGO BOSS early on during the pandemic. In particular, we initiated a set of comprehensive measures to safeguard our cash flow and successfully implemented them over the course of the year. This, in turn, enabled us to significantly reduce our operating expenses, to postpone all non-business-critical investments until further notice and to significantly reduce the merchandise inflow. All of this ensured that we had sufficient liquidity at all times, ending the year 2020 with a positive free cash flow of EUR 164 million. In addition, we have not yet utilized the additional credit lines that we secured during the year.
“We made significant progress in successfully executing our strategic priorities in 2020.”
Despite the noticeable negative impact of the pandemic on our business, in 2020 we continued to make significant progress when it comes to our strategic initiatives, particularly in the important online business and in our growth market China. With a currency-adjusted sales increase of almost 50%, our online business did extremely well and posted significant double-digit growth for the third consecutive year. For the first time in our history, in 2020 we have managed to break the EUR 200 million mark with our online sales. This was also supported by the successful roll-out of our online flagship hugoboss.com into 32 additional markets. Following the lockdown in the first quarter, our business in mainland China also experienced strong growth. Already in the course of the second quarter, we were able to return to our double-digit growth trajectory there. Overall, our currency-adjusted sales in mainland China increased by 5% in 2020.
From a brand perspective, further increasing the desirability of BOSS and HUGO was a clear focus of all our initiatives in 2020. Since we had to cancel many in-person events during the pandemic, the focus was more than ever on social media. Here, our exclusive collaborations with well-known brands and ambassadors are paying off more and more. And I am particularly pleased that with Hollywood actor Chris Hemsworth we have recently signed the first global brand ambassador for BOSS Menswear. In this role, the 37-year-old Australian will be the face of the brand’s future global campaigns, further increasing its relevance, especially among younger customers, and giving a strong boost to our important casualwear business. Our recently announced partnerships with the American sportswear brand Russell Athletic and the professional basketball league NBA will provide further tailwind in this context. Thanks to their clear focus on street style, both collections will further strengthen the appeal of BOSS casualwear – globally, but above all on the important U.S. market.
In 2020, we also managed to further increase the efficiency and flexibility of our operational processes – as we increasingly exploit the vast potential that comes along with digitization. Already today, more than 50% of our products are developed digitally, thus continuously reducing lead times. An important milestone in this regard is our completely digitally developed BOSS casualwear collection, which will be launched this summer. Its development took just eight weeks, impressively demonstrating how digitalization will enable us to react significantly faster to market trends and thus fulfill the wishes of our customers even better going forward.
Although 2020 was without doubt severely impacted by the pandemic, we have never lost sight of sustainability. Instead, we continued to make significant progress on this important topic as well. We are particularly proud that HUGO BOSS has been included in the Dow Jones Sustainability Index (DJSI) World for the fourth time in a row, making us one of the three most sustainable companies in our industry. Our strong commitment to sustainability is also becoming increasingly visible in our collections. Not only did we successfully launch the first completely vegan BOSS suit last year, but our “traceable wool” collection also enables our customers to seamlessly track the entire supply chain. Through our strong commitment to sustainability, we will ensure to best meet the growing customer expectations whilst at the same time creating added value for the environment and society.
“We will continue to push the casualization of our business model.”
Being the most desirable fashion and lifestyle brand in the premium segment of the global apparel market is and remains our vision. This is why the relentless execution of our strategic initiatives will take center stage also in 2021, thereby taking into account the structural changes in our industry which in many cases are being further fueled by the pandemic. Not only is the shopping behavior of customers increasingly shifting from offline to online, but the global trend toward a more casual and sustainable lifestyle has also experienced a further strong boost in recent years. It will therefore remain one of our top priorities going forward to push the casualization of our business model – across all brands, genders and wearing occasions. At the same time, we will continue to make every effort to consistently pursue our success story in the online business and in the important growth market of China.
Pushing ahead with our strategic initiatives will also be critical to returning to sales and profit growth as soon as possible. Although uncertainties regarding the further development of the pandemic remain high for the time being, our focus clearly remains on driving the further recovery of our global business. With its more than 1,000 points of sale globally, our brick-and-mortar retail business plays a decisive role here, as it is still being noticeably affected by ongoing lockdowns and severe restrictions on public life in many markets. Nevertheless, I am absolutely convinced that through our numerous brand and product initiatives, we will create excitement around both brands – BOSS and HUGO – in 2021 and win over the consumer. This in turn should enable our global business to recover meaningfully in fiscal year 2021.
In light of the significant impact of the pandemic on sales, EBIT and free cash flow in fiscal year 2020 and in view of the continuing high level of uncertainty, we will propose to the 2021 Annual Shareholders’ Meeting to only pay the legal minimum dividend of EUR 0.04 per share for fiscal year 2020. Such a decision is far from easy for us. However, given the extraordinary circumstances, we consider this decision to be imperative, as it is essential to further strengthen our financial stability and flexibility in this challenging period. Nevertheless, I remain confident that HUGO BOSS will continue to generate a significantly positive free cash flow in the future on the basis of a general recovery of its business and thanks to its strong business model. This, in turn, will be the basis for returning to an attractive dividend policy in future.
Dear shareholders, I am fully convinced that in 2020 we have once again laid important foundations to ensure long-term success for HUGO BOSS. This, in turn, will form a strong basis for future shareholder value creation! I would like to take this opportunity to thank our almost 14,000 employees worldwide. Thanks to their tremendous efforts and great commitment, HUGO BOSS has been able to overcome the challenges of 2020. Even though the pandemic has led to many changes, the connection between our employees, our company and our two strong brands – BOSS and HUGO – is stronger than ever before. That fills me with great pride and is a crucial foundation for the successful future of our company.
Thank you for your support!
Spokesperson of the Managing Board