Hugo Boss AG (OTCQX:BOSSY) Q3 2022 Results Conference Call November 6, 2022 6:00 AM ET
Company Participants
Christian Stohr – VP, IR
Yves Muller – CFO and COO
Grace Smalley – Morgan Stanley
Conference Call Participants
Grace Smalley – Morgan Stanley
Manjari Dhar – RBC
Kathryn Parker – Jefferies
Jurgen Kolb – Kepler Cheuvreux
Sam Parry – Berenberg
Thomas Chauvet – Citi
Michael Kuhn – Deutsche Bank
Thierry Cota – Societe Generale
Rogerio Fujimori – Stifel
Operator
Dear ladies and gentlemen, welcome to the HUGO BOSS third Quarter 2022 Results Conference Call. At our customers’ request, this conference will be recorded. [Operator Instructions] After the presentation, there will be an opportunity to ask questions via the telephone lines. [Operator Instructions]
May I now hand you over to Christian Stohr, Vice President of Investor Relations, who will lead you through this conference. Please go ahead. .
Christian Stohr
Yes. Thanks very much. And good morning, everyone. Welcome to our third quarter 2022 financial results presentation. Today’s conference call will be hosted by Yves Muller, CFO and COO of HUGO BOSS.
Now before I hand over to Yves, allow me to remind you that just like in the past, all revenue-related growth rates will be discussed on a currency-adjusted basis. And 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 two. So without any further due, let’s get started. And over to you, Yves.
Yves Muller
Thank you, Christian. And also from my side, a warm welcome to all of you and thank you very much for your interest. As you have taken notice from our press release this morning, at HUGO BOSS, we look back on a very successful third quarter, a quarter in which the strong top line momentum continues seamlessly, spurred by the relentless execution of several brand product and distribution initiatives as part of our CLAIM 5 strategy.
Revenues increased a strong 18% year-over-year to €933 million, which means yet another record quarter of our company in terms of sales. Importantly, momentum was once more broad-based in Asia with double-digit growth across both our brands as well as all regions and all channels.
But also from a bottom line perspective, we are very pleased with the development in the third quarter. At €92 million, EBIT was up 8% year-over-year, driven by our strong top line performance. In achieving this, we were able to more than compensate for a moderate decline in gross margin as well as further important investments into our business, both of which I will talk about in detail in just a few minutes. But first, let’s take a closer look at our top line performance with revenues up 18% in Q3. This translates into a strong 3-year stack growth of 27%.
Thus, virtually on par with the stellar momentum recorded during the second quarter. This is clear evidence that against some market trends, we have not perceived any signs of a slowdown in the global consumer demand or shopping behavior during the third quarter. Instead, it impressively demonstrates the strength and resilience of our brands and the significant progress achieved over the past few quarters when it comes to relentless execution our winning formula CLAIM 5.
Above all, and no different to the first half of the year, it is the successful implementation of our branding refresh that has continued to spur momentum for BOSS and HUGO, thereby propelling brand perception and brand relevance all around the globe. So let’s dive a little bit deeper into the world of our brands.
Starting with BOSS, where the global launch of the Fall/Winter 2022 collection was accompanied by another star-studded campaign building on the huge success of our comprehensive branding refresh initiated at the beginning of the year.
The high profile and diverse all star cast of BOSS, including celebrities like Kendall Jenner, Naomi Campbell, Khaby Lame and Lee Min-ho have continued to fuel brand heat on social media and strongly contributed to our brand’s increasing relevance among younger generations and millennials in particular.
As we have highlighted in the past, we regard Instagram as one of our key communication channels to win over the next generations of consumers. And I’m particularly pleased to report that BOSS has been the fastest-growing brand on Instagram among key premium apparel brands for several quarters in a row. This strong trend has also continued during the third quarter.
In addition to our global brand campaign, numerous marketing and product initiatives have further fueled brand heat for BOSS in Q3. This includes the launch of several exciting collaborations such as those with BOSS brand ambassador, Alica and Matteo, as well as a star-studded fashion event at Milan Fashion Week in September. The spectacular show was live streamed across multiple social media platforms with selective styles instantly shoppable on hugoboss.com as well as via live stream on TikTok.
It yet was another stunning social media moment for BOSS, propelling brand awareness and further tapping into a younger demographic. In the wake of these successes and supported by a strong increase in sell-through way of the current fall/winter collection, BOSS posted double-digit top line improvements in the third quarter. While revenues for BOSS Men were up 20% compared to the prior year levels, sales for BOSS Womenswear increased 13%, thus strongly accelerating to double-digit growth on a 3-year stack basis.
And with double-digit growth across all wearing occasions, BOSS made further progress when it comes to fostering its 24/7 lifestyle image.
Moving over to HUGO, where the Fall/Winter 2022 campaign once more emphasize the brand’s strategic focus on contemporary and commercial styles. Stars and influencers of the Gen Z, among others, Big Matthew and SAINt JHN, have created further buzz from social media and on TikTok in particular. The latter is the perfect platform of self expression for HUGO’s target audience. And it’s exciting to see that in 2022, HUGO has strongly outperformed its directs competitors on that channel.
Similar to BOSS, Q3 has also been an extremely busy quarter for HUGO with several marketing and product initiatives taking front and center stage. Back in September, HUGO joined forces with Replay for a truly unique denim collection, bringing together a mix of classic and trend-driven denim styles with easy wear jersey pieces, the collaboration is strongly contributing to HUGO’s strategic ambition of strengthening its denim offering.
Also in September, HUGO showcased its latest fall/winter 2022 to collection during the Milan Fashion week. In an urban setting inspired by race culture, HUGO unveiled the latest statement starts of the season and made them instantly available online via live shopping tool. And last but certainly not least, only a couple of weeks ago, HUGO launched its first-ever NFT collection in close collaborations with Imaginary Ones, dialing into the exciting virtual worlds of metaverse.
And let me say the hype is real. Our 500 digital shirts specially designed for this purpose were sold out within minutes. Thanks to all these initiatives, HUGO has not only further increased relevance among younger consumers, but also successfully continues its double-digit growth trajectory in the third quarter. With revenues up 13% year-over-year, this translates into a robust 3-year stack of 29%, once more led by strong double-digit improvements in HUGO’s important casual wear as well as shoes and necessary business.
Let’s now move over to our channels, where growth in Q3 was once again broad based in nature with double-digit sales improvements across all consumer touch points, starting with brick-and-mortar retail, where momentum was particularly strong throughout all of Q3, enabling us to drive robust growth of 18% year-over-year.
Consequently, on a 3-year stack basis, growth in brick-and-mortar retail accelerated to 25%, up 6 percentage points as compared to the second quarter with all 3 regions recording sequential revenue improvements. This strong performance was fueled by a strong uptick in traffic leading to double-digit improvements in store productivity compared to the full year 2021.
Moving over to physical wholesale, where year-over-year revenue growth also came in at 18%. While we continue to enjoy strong underlying demand from wholesale partners around the globe, we recorded some delivery shifts effect from Q3 into Q4.
Overall, the adversive impact on third quarter revenues amounted to around €30 million. Hence, limiting growth in Q3 to some extent. As a result, on a 3-year set basis, sales in physical wholesale expanded by 10%.
Finally, on our digital business, which successfully continued its double-digit growth trajectory year-on-year. In fact, growth in our digital channels reaccelerated to 20% in Q3, reflecting both double-digit sales increases in our digital flagship, hugoboss.com, as well as in digital revenues generated with our partners.
Compared to pre-pandemic levels, revenues even doubled, leading to a digital share of 17% in the third quarter. Let’s conclude on our top line with a review of the performance by region.
Fueled by our successful branding refresh and supported by ongoing robust consumer demand, we recorded double-digit sales improvements across all regions in the third quarter. In Europe, sales increased 17% over year and 28% compared to 2019 with momentum in our brick and mortar retail business further accelerating on a 3-year stack basis, up 21% versus 2019 levels. At the same time, the aforementioned delivery shift effects limited revenue growth in brick-and-mortar wholesale to some extent.
Overall, sales in Germany were up 19% year-over-year, while the U.K. and France posted growth of 9% and 8%, respectively. In addition, we continued to enjoy strong momentum in both Eastern Europe as well as the Middle East as reflected by strong double-digit growth year-over-year.
Also in the Americas, our business performance remained strong throughout the third quarter, with sales up 18% year-over-year. Compared to 2019 levels, momentum in the Americas, therefore, remained virtually at the level of the second quarter with sales expanding by 35% and strong support coming from all of the region’s markets.
I’m particularly pleased that we recorded yet another quarter of sequential improvement in our brick-and-mortar retail sales trajectory in the region. Compared to 2019 levels, momentum in this channel accelerated by 4 percentage points quarter-over-quarter, leading to a 3-year stack growth of 48%.
In the important U.S. market, where we continue to successfully foster the 24/7 brand image of BOSS and HUGO, momentum in brick-and-mortar retail also accelerated as compared to the second quarter.
Finally, on Asia Pacific, where momentum strongly picked up in the third quarter, enabling us to return to double-digit growth with revenues up 33% year-over-year and 15% compared to pre-pandemic levels.
Significant double-digit revenue improvement in Southeast Asia and Pacific spurred momentum in the region, led by a strong recovery in markets such as Australia, Japan and South Korea. While our brands also recorded a promising start into the third quarter in mainland China, with July revenues up high single digits year-on-year, pandemic-related restrictions weighed on the performance during the remainder of Q3. This is particularly true for the month of September, where around 15% of our stores in mainland China had to either temporarily close their doors or significantly reduce their opening hours.
As a result, our business in mainland China ended the quarter 3% below the prior year level, translating into 3-year stack growth of 12%. With this, let’s now move on to the remaining P&L items.
Starting with our gross margin, which totaled 60.8% in the third quarter, representing a moderate decline of 90 basis points compared to last year. This development is mainly related to the persistently high level of global freight costs as well as unfavorable currency movements with the U.S. dollar further strengthening during the third quarter.
In addition to that, we also recorded some negative channel and regional mix effects, both of which weighed on our gross margin development in Q3. Overall, this more than offset the positive impact from a higher share of full-price sales in Q3, with the latter reflecting the significant uptick in brand momentum following the successful branding refresh.
In this context, let me clearly emphasize that the underlying momentum in our full-price business was just as strong as it was during the second quarter with no signs of a slowdown in Q3. In particular, our business had not been impacted by any sign of elevated promotional activity that some industry players have been mentioning later.
Instead compared to the prior year period, we managed to reduce total price reductions by a mid-single-digit percentage range year-over-year. Moving over to operating expenses, which increased 25%, largely reflecting our well-flagged ongoing investments into the business as part of our CLAIM 5 strategy.
As a percentage of sales, however, and supported by the strong top line development, total operating expenses increased only moderately by 50 basis points to a level of 50.9%, well below pre-pandemic levels. In particular, selling and distribution expenses were up 28% year-over-year, driven by an increase in variable rents and fulfillment costs in light of our strong revenue growth.
In addition, we stepped up our marketing investments by 39%, largely reflecting the 2 successful brand campaigns and fashion events of BOSS and HUGO. At 7.6% of group net sales, marketing investments were thus within our target range of 7% to 8% as laid out in CLAIM 5.
Administration expenses, on the other hand, increased 15%, largely attributable to a step-up in digital investments as well as higher payroll costs, both aimed at supporting the successful execution of our 2 strategic priorities, lean and digital and organized for growth. Now spurred by the strong top line performance, we recorded a robust increase in EBIT in the third quarter, thereby more than compensating for the moderate decline in gross margin as well as the aforementioned investments into our business.
Overall, EBIT was up 8% to a level of €92 million, resulting in an EBIT margin of 9.9% in Q3. Let’s now turn to the balance sheet, starting with inventories, which increased 41% on the currency-adjusted basis. There are a few factors driving this increase all worth noting. So let me put things into perspective.
Above all, the increase in inventories in the third quarter reflects our aim to support our strong top line momentum across all channels. This also includes serving our record-breaking wholesale order books for fall/winter 2022 and pre-spring 2023. In addition to mitigate ongoing supply chain risk as fast as possible and to ensure product availability for upcoming season, we intentionally increased our inventory coverage by accepting earlier receipts of core merchandise.
Finally, we also recorded a more pronounced increase of goods in transit, largely reflecting the ongoing situation when it comes to global freight and transportation capacities. Importantly, the vast majority of the intentional buildup in inventories is related to either core merchandise that can be sold over several future seasons, all products related to the current fall winter and upcoming pre spring collections.
And let me also be very clear in saying that the overall inventory turn continues to look very good as reflected by a further improvement in the aging of the inventories. To summarize, we continue to feel comfortable with regards to our inventory position in particular, when looking at its overall composition. Our inventory mix is not only healthy but also of high quality, thus paving the way for future top line improvements at full price. This brings me to trade net working capital with moving average of the last 4 quarters, summing up to 14% of group sales. That’s once again well below the prior year level.
In this context, the higher inventory position was largely offset by a strong increase in trade payables year-over-year, mainly reflecting in higher utilization of our supplier financing program. Capital expenditure in turn was up 64% as compared to last year with investment activity once more focused on the continuous optimization of our global store network, including the renovation of key locations in New York City and Vienna, as well as new openings in the Middle East and on London’s Oxford Street.
Consequently, free cash flow amounted to minus €5 million in the third quarter as the bottom line improvements were more than offset by the increase in inventory and the step-up in capital expenditure. Now this concludes my remarks on the third quarter operational and financial performance. Let’s now move over to our expectations for the full year and the fourth quarter, in particular.
As you have noticed from our press release, we increased our 2022 full year outlook for the second time this year. In doing so, we took account of the strong top line momentum in the third quarter and first 9 months, respectively. The considerable uptick in brand momentum, as well as our confidence when it comes to the important final quarter.
The successful execution of our CLAIM 5 strategy will continue to be our clear focus also in Q4 and provide ongoing tailwinds during the upcoming holiday season. At the same time, our updated outlook continues to reflect the persistingly high levels of macroeconomic uncertainty as the overall conditions in the market are far from normal. Besides that, we must not ignore the fact that also the comparison base is getting more challenging, having returned to double-digit growth versus pre-pandemic levels in Q4 last year.
Consequently, regarding our top line, we now forecast group revenues in fiscal year 2022 to increase by between 25% and 30% to a new record level of €3.5 billion to €3.6 billion. Importantly, and fully in line with CLAIM 5, growth this year will be broad-based in nature with both our brands as well as all regions and all channels set to contribute with double-digit increases.
Our confidence is underpinned by the persisting strong brand momentum of BOSS and HUGO and the fact that we have not witnessed any material change in consumer shopping behavior now brought a slowdown in overall consumer demand at this point of time.
Based on the anticipated strong top line growth and at least stable gross margin development year-on-year, we are now forecasting EBIT to increase with a range of 35% and 45% to a level of between €310 million and €330 million in fiscal year 2022. This holds true despite the step-up in product, brand and digital investments, which are a firm element of CLAIM 5 and which also be visible in the final quarter. At the same time, we have also factored in some of the ongoing macroeconomic uncertainties, in particular, when it comes to elevated freight and energy cost levels as well as high general cost inflation with the latter expected to have a more pronounced impact on our fixed cost development in the short term.
Ladies and gentlemen, this concludes my remarks for today. Before we start the Q&A session, let me conclude by briefly recapping on our performance to date and our expectations going forward. Above all, at HUGO BOSS, we are all the more encouraged with our — how our business has gained traction over the past 9 months.
Our strong top line momentum in Q3 with no signs of a potential slowdown impressively demonstrates the power of CLAIM 5 and the many successes related to our comprehensive branding refresh. With both brands, BOSS and HUGO, are enjoying tremendous momentum, thereby winning over younger consumers. Our business model is stronger and more resilient than ever before and built on a broad and robust foundation.
At HUGO BOSS, we are therefore well prepared to continue our success story in Q4 and beyond. Over the last several quarters, we have laid the basis to continue serving our customers as best as possible thereby exploiting our global sales opportunities in a high-quality manner. By sticking to our game plan and continuing to execute CLAIM 5 in the most determined manner, we will not only make 2022 a record year for HUGO BOSS, but also achieve an important milestone along our way towards our 2025 financial ambitions.
And with this, I’m now very happy to take your questions.
Question-and-Answer Session
Operator
We will now begin our question-and-answer session. [Operator Instructions] The first question is coming from Grace Smalley at Morgan Stanley.
Grace Smalley
So my first question would be on the brick-and-mortar retail sales. The sequential acceleration that you saw in Q3 relative to 2019. Was this broad-based across all geographies? And did price increases contribute to the sequential improvement as well?
And then my second question would be on Q4 today and on October. Could you also comment on what you’re seeing in those brick-and-mortar retail sales in October and how that momentum compares to kind of that improvement that you did see this quarter?
Operator
There seems to be a technical issue. We’re going on a quick break and be back to you in a second. [Technical Difficulty] Sorry for the small inconvenience. We are back. Grace Smalley, you have the first question. Can you please say it again?
Grace Smalley
So my question is, firstly, on the brick-and-mortar retail sales relative to 2019, you saw a sequential acceleration this quarter. Could you comment on whether that was broad-based across all geographies and whether also price increases contributed to that sequential improvement?
And then my second question, which is on October and again, whether you’ve seen that momentum in brick-and-mortar retail sales continue into October?
Yves Muller
Yes, Grace. Thank you very much for your questions.
So what we can clearly confirm that the momentum on brick-and-mortar retail accelerated versus Q2, which we’re very happy about. And actually, like in all the businesses that we have experienced now, it’s really broad-based. And this gives us a very high confidence that the brand momentum and the product initiatives that we did, the global campaign that we’re doing, that we are well on track. So we are very happy with this kind of acceleration in our brick-and-mortar business. When it comes to current trading in October, we have not seen any slowdown in consumer demand. And actually, we are very happy how we started into Q4.
Operator
The next questions come from Manjari Dhar at RBC.
Manjari Dhar
Congratulations on another strong quarter. My first question is just on the forward order book for wholesale. Could you give a little more granularity on how that’s looking perhaps by region? And then secondly, how are you thinking about marketing spending for Q4 and as we head into next year?
Yves Muller
So regarding the wholesale orders, we have very, very strong wholesale orders actually for the pre-spring and as well for the spring/summer. We are up nicely, very decent double-digit number versus prior year. This is clearly driven by all the initiatives that we are doing across all the different top lines for the BOSS brand, black, camo, green and orange is there as well, very much broad-based.
And we see actually that we’re increasing our wholesale orders via all different business units, so BOSS Menswear, BOSS Womenswear and HUGO and across all geographies. So again, like I said, you’re doing the speech for the wholesale or is it the same. It’s very much broad-based across all regions.
Please note that, of course, wholesale business in Asia Pacific is a very small amount. So it vastly refers, of course, to Europe and the Americas. And regarding the marketing spending. So clearly, I think it’s worth mentioning that in Q3, we stepped up our marketing spendings by 39%. And so this means actually, in absolute terms, it’s €20 million of more investment comparison to 2021. So I think it’s worth mentioning.
And clearly, these are clear marketing investments for us because they really drive our brand momentum that we experienced, and this will continue in Q4 as well. And as we laid out in our strategy clearly in CLAIM 5, we want to step up marketing spending. So we expect, like always, a range between 7% and 8% for the outer years to come regarding marketing expenditures.
Operator
The next question is coming from Kathryn Parker at Jefferies.
Kathryn Parker
So my first question is on China. And I wondered if you could give us a little more clarity on what you’ve seen in October in terms of traffic and whether there have been any meaningful differences between like different cities or between full-price and off-price? And then my second question is on the sales guidance going into Q4. And I wondered if you could explain your expectations for the different regions? And yes.
Yves Muller
Yes. Kathryn, thank you very much for your questions. So regarding China, perhaps some more colors. So first of all, which is very encouraging for us. Once the lockdowns are over in specific cities, we see actually that the business picks up very quickly. So this is clearly, from our perspective, very positive.
On the other side, like we said during September, we have experienced lockdown situation in several cities like Chengdu and Guangdong area, where 15% of the store was somewhat affected. So I think it’s always an on and off situation. And of course, this is somehow reflected in our guidance as well since the Chinese government will stick actually to no COVID policy. I think it’s very, very difficult to predict.
On the other side, if you talk about HUGO BOSS, we were able in Q3 to have a Chinese phase. So we have a swimmer being the phase for our Chinese consumer. We are really happy that we signed this contract, so we are more active on the marketing side as well.
Yes, and that’s the situation in China. I think you can — you have to fly not on autopilot. You have to fly manually in China because it’s on and off situation with lockdowns. And actually, Golden Week was for us on par to prior year. So we actually were happy how we started in the first weeks into October.
Regarding the sales guidance. Of course, we somehow, like I just mentioned regarding China, we somehow incorporated kind of macroeconomic uncertainties. On the other side, I have to say that until today, we have noticed, not at all, on the global level, any slowdown in consumer demand. So we are actually very happy how we started in Q4 with regards to our top line. And this refers actually like broad-based in nature, the same situation we had actually in Q3 as refers to Q4 as well. So overall, we are really — extremely happy with our performance so far.
Operator
Your next question is coming from Jurgen Kolb at Kepler Cheuvreux.
Jurgen Kolb
And congrats for that quarter and the second guidance increase, indeed impressive. Two questions, really. First of all, the share of your collaborations that you’re extending also with HUGO and now Replay, what level has that reached as a percent of sales? Or how much was that really affecting your better sell-through rate that you called out here in this presentation?
And the second one is you mentioned that the wholesale order book for spring and pre-spring looks very encouraging, double-digit up. Did you notice these any collection switches? Or are there any fashion trends that are changing going into the next year? Anything that you can maybe talk about?
Yves Muller
Yes. Thank you very much for your questions. So first of all, the share of collaborations. I mean we have several collaborations with both brands, BOSS and HUGO. So we will have another launch of the NBA collection in Q4, which we perceive to be — we perceive to be very strong. We have HUGO on the other side with the collaborations like we said, Replay.
And on the other side, you have to say in terms of the overall sell-through, it’s very linear. So they’re very comparable with the sales through off the others of the normal collection, let’s say. So actually, this is not driving somehow the sell-throughs. But on the other side, we are very happy because these collaborations are really inspiring consumers. We get new consumers into our customer base. So we will continue to do those collaborations because they are really creating a lot of buzz around all both brands, BOSS and HUGO. And regarding wholesale for the next seasons to come, what we have seen, especially for the seasons pre-spring and spring summer is that especially smart casual and especially formalwear is picking up.
So clearly, the suit is back, with the suits somehow interpret in a modern way, very comfortable look, performance-driven innovative products. So really, we have seen tremendous demand on the formalwear side. But on the other side, I have to say that organ and green and actually the new introduced camel that all the different stop lines generated double-digit growth perspective. So actually, a very, very strong broad-based wholesale order with a kind of very positive notion on BOSS Black and especially on smart casual items.
Operator
The next question is coming from Sam Parry of Berenberg.
Sam Parry
So first ones on CapEx. So you’ve lowered guidance again this year. So I was just wondering, have you slowed the pace of store refreshes? Are you still on track to get this done by 2024? And can you remind us how many stores you’ve refurbished so far?
And then my second question is on price increases. So could you just talk to how consumers responded to autumn/winter price increases? And what increase are you planning, if any, for the spring/summer ’23?
Yves Muller
Sam, thank you very much for your questions. So regarding CapEx, clearly, the investments that we’re doing on the digital sphere and investing into our retail environment is what we do regarding CLAIM 5. Lowering the CapEx now has more like operational issues is because sometimes it’s difficult to get the materials, it’s difficult to find the right workforce. So it’s more operationally driven and not actually strategic intentionally.
So clearly, we have the full willingness to invest into the store concept. It’s running nicely. Those stores that are remodeled. They are really welcoming the consumer. We get extremely good feedback, very good conversion. So we will keep on investing into our retail network because this is driving the store productivity overall. So far, in our universe, we have remodeled or have in the new store concept around 60 stores, shops and outlets, so 25 more or less on the freestanding store, 25 shop-in-shop and 10 outlets that have been remodeled so far and the results are really very, very encouraging that we see.
And we will continue to invest clearly. Regarding price increases, yes, we did have the price increase for fall/winter this year at around mid- to high single-digit rate. Actually later and at a lower extent, versus our competition, we see that the consumer really accept the price increases overall. We enjoy very, very high sell-throughs in the retail environment. And with these price policy that we are taking, we are clearly gaining market share from the competition, I think, which is very crucial in these times because in these times of macroeconomic uncertainties the stronger brands win over the weaker brands, and we are really gaining in the premium apparel sector, a lot of market share, and we will continue to do so. And this, although we were increasing the prices.
So this is, for us, very encouraging. And since we are enjoying brand momentum on a very, very large scale, we will intend to increase for the pre-fall ’23 another mid-single-digit price increases that we intend to do. I think this is clearly doable from our side, given the momentum that we are enjoying for the time being. And given the situation, how the competition actually has reacted to the overall cost inflation overall.
Operator
The next question is coming from [indiscernible] at BNP Paribas Exane.
Unidentified Analyst
This is Melanie [indiscernible] from BNP Paribas. I have 2 questions. So first, one question is on the Americas. Your growth in Americas remains quite strong. Also, we’re looking at 2019. However, I was wondering if you can give us some color regarding your in-store performance in the region, let’s say, some sort of like-for-like. And also what you have done significantly to improve so much in the region.
My other question is on millennials to Gen Z. If you could please disclose all these 2 quarters represent on your sales, let’s say, in 2022 compared to what they were in 2019.
Yves Muller
Sorry, Melanie, could you repeat the second question, please? I think we didn’t get the second one.
Unidentified Analyst
Yes, Millennials, Gen Z, would this 2, let’s say, quarters represent on your sales versus now compared to what was, let’s say, in 2019?
Yves Muller
Yes. Yes. Thank you, Melanie. Thank you very much for your 2 questions. Regarding Americas, we clearly enjoy ongoing strong momentum throughout the whole year and even accelerated in Q3 regarding our retail performance overall.
If you compare our numbers to 2019 in the Americas overall, it’s plus 48% on a 3-year stack basis in the retail environment. We perceive this very strong, and this is more or less actually related to a strong improvement in store productivity. The main driver of this is clearly that we introduced our 24/7 lifestyle image, which is a big focus on sportswear and on casualwear items because, as you know, historically, we were perceived as a suit-only company. So with the adjustments on the assortment that we did, we had actually tremendous success in the Americas, and this continues to be.
So very happy about the performance in the U.S., and it continues to be strong as well in October. Regarding the consumer, clearly, what we were doing in our branding refresh, it was not only a branding refresh regarding the logo, the whole campaign was very much dedicated to social media and getting actually the younger consumers, the millennials for our BOSS brand and Gen Z for HUGO.
So we created a tremendous buzz on social media, and this really drives a tremendous increase in younger consumer driving and fueling the growth of HUGO BOSS, which we are very happy about. And actually, we could reduce the average age of the consumers for the BOSS brand by 3 years over the last quarter. So I think this is very, very strong that you can see that the average age of the consumer is now getting younger, what we intentionally always wanted to do.
Operator
The next question is coming from Thomas Chauvet at Citi.
Thomas Vincent
My first question on retail productivity, which is up over 20% in the first 9 months to above €11,000 per square meter. So that’s above pre-pandemic level. Could you comment on the most important drivers of that, particularly whether you’ve gained a lot from the rightsizing exercise you’ve done of your store network and whether you’re happy with that element of store productivity improvement.
The second question on your EBIT guidance, the top end of your EBIT guidance the €330 million for the year implies just under €100 million of EBIT in Q4. So that’s on par with last year, but that’s 25% below — 25% below 2019 level. Can you explain how you get there, especially, I guess, you must have a pretty clear view of the OpEx budget for the fourth quarter by now.
And just finally, a bit of just segment reporting disclosure on outlets. In 2019, outlets represented about 1/3 of our your retail sales. I know you don’t disclose the revenues anymore, but could you perhaps in this call, just indicate how this figure looks like in the first 9 month and whether in the last few months, you’ve seen a change in trend with maybe a better momentum in outlet versus your freestanding or shop-in-shops.
Yves Muller
Yes. So the first question is related to the store productivity. So we have now in the first 9 months store productivity of €11,600. So we are even now above 2019 levels.
And I think the major driver of this is traffic and good conversion rate, mainly driven by the clear price positioning and actually the merchandising that we are doing in the stores, the renovation of new stores, further optimization of reducing space of like oversized stores. So this is really paying off.
And actually, we will intend to do so in the future because we really, as in CLAIM 5, we said we want to focus on store productivity because this, at the end, is driving operating leverage in our retail portfolio and this is what we are aiming for. And this is why we are now remodeling different stores and optimizing our rightsized other stores. So actually, we are above our own plans.
So far, we are performing very nicely regarding store productivity so far. Then regarding the EBIT guidance of the upper end. So we guided between €310 million and €330 million. I mean, overall, what you have to say I think it’s not fair to compare with 2019 because we are in full mode of executing our CLAIM 5 strategy.
And this means that we have ongoing investments into the brand with ongoing investments into the product and in digital. So this means that with that, we are clearly on our path to execute CLAIM 5 to come to €4 billion in assets in 2025 with an EBIT return of 12%. And this requires investments in order to fuel the growth for 2023 and beyond.
So we are not managing a quarter. We are clearly managing mid- and long term, and this means keep the brand hot keep both brands cool, enjoy strong brand momentum. I think this is what we are driving. And by the way, we have actually increased our guidance now twice during the year, I think the performance is pretty strong.
And regarding segment in outlets. So 1/3, I can assure you now that this relative share has decreased over the time. The strongest growth actually out of the retail environment comes from the freestanding stores that we have experienced so far in comparison to ’21. So clearly, this is an indication that we were focusing on that the full-price business enjoys a very, very strong momentum that actually the new collections are outperforming even the older ones in terms of outlets and that this is actually driving the growth of the company.
And in relative terms, the growth in the full-price business is stronger for the time being than in outlets.
Operator
The next question is coming from Michael Kuhn at Deutsche Bank.
Michael Kuhn
Yves and Christian, briefly on cost that become a bigger headwind over time. Can you differentiate between, let’s say, underlying OpEx inflation and the factors around CLAIM 5 and that context. Obviously, not that much about marketing. But all the other cost items.
And digging a bit deeper here, can you roughly quantify what do you pay for rents and especially inflation-linked rents for energy and the current personnel share in the OpEx and what inflation rates you see for those items at the moment just to get a little better idea what we should model over the upcoming quarters in terms of cost inflation.
Yves Muller
So of course, we are closely monitoring our cost situation. Overall, Michael, we are clearly in the investment mode. We want to invest into marketing, into product and into digital. I think that where you’re more focusing is actually on the retail environment. And there, you have a lot of moving parts because on the 1 side, we are optimizing our store portfolio.
During CLAIM 5, actually, we set 2025 P&L in comparison to 2019. We want to reduce the brick-and-mortar retail cost by 600 basis points 2025 versus 2019 in percentage of group net sales. So actually, we want to drive the efficiency in the retail environment and we are still well on track in executing this. So there are so many moving parts in rightsizing stores, renegotiating new rents because I think there are — here and there some positive negotiation effects as well, which are then here and there are compensated by cost inflation.
So it’s very, very difficult to model. But overall, in your spreadsheet or wherever, you should consider that we are driving the efficiency in that brick-and-mortar retail cost should go down in percentage of group net sales because — and then by this, actually, we want to derisk our own business as well.
Michael Kuhn
Fully understood. But still, let’s say, I would say, inflation expectations now compared with the point of time when you presented CLAIM 5, I have clearly moved up. So is that at all putting a risk to reaching your target or not at all? And maybe in your internal projection, how have the inflation expectation changed?
Yves Muller
No, of course, I mean, yes, you have here and there some inflation, but this is compensated by price increases that we are doing on the other side. So this is not a major issue for us so far. .
Michael Kuhn
Okay. So the mid- to high single-digit price increases you mentioned earlier in the call are sufficient for now to compensate for the inflationary headwinds?
Yves Muller
Yes.
Operator
The next question is coming from Thierry Cota at Societe Generale.
Thierry Cota
First, we’ve seen a big drop recently of the freight prices and costs. So — and I know they’ve been very volatile over the year. But if they were stable going forward where they are today, what kind of tailwind of gross margin would you expect on next year, number one.
Second question on Q4, Hello? Yes, they went down. It seems dramatically if I look at the latest data. Secondly, on revenue growth in Q4, if we take your — the new guidance. If I’m not mistaken, if we take the midpoint, our revenue growth would drop to single digit in Q4 on a reported basis even with price increases and the FX tailwind and on the high point would be in the low, low teens. So there will be a quite dramatic slowdown when you said that you don’t see any change at this point in demand, which frankly is extremely encouraging when we see the October German market data for apparel which seems to be pretty weak, but it seems that you don’t see the same thing for your business.
So going back to that guidance, while taking quarter-on-quarter such a low level compared to the recent performance in your Q4 expectations? And lastly, just 2 small number questions. I think you mentioned in your release that on wholesale, there was a headwind in Q3, a technical headwind with different calendar. So I was wondering if you could measure that headwind, how much it was? Was it €5 million, €10 million, €15 million in Q3? And I was wondering if there were any one-offs notable or noticeable in the Q3 EBIT?
Yves Muller
So regarding wholesale, I had this during my speech. It was — we quantified the delivery shift from Q3 to Q4 by €30 million, just €30 million.
Thierry Cota
Sorry, I probably missed that. .
Yves Muller
No problem, Thierry.
Thierry Cota
I joined late. I’m sorry. €30 million, so that’s a lot.
Yves Muller
Yes, that’s a lot. Yes, that’s true. And regarding — so regarding your first question, freight costs. Yes, we have seen so far. I mean for the first — first of all, I think it’s worth mentioning that you locked the freight cost with a time delay of 6 months. So you have to always incorporate that you have a kind of time relay once your lower freight costs will return into the P&L, so it will take some time. But clearly, the tailwind accounts for 50 to 100 basis points in terms of freight costs if they stay on a low level. So this is — this can be a tailwind for the outer years ’23 and ’24 and beyond clearly.
And regarding the revenue guidance, I mean, I think we have shown this year that we’d rather under promise and over deliver. We know that we live in a world of macroeconomic uncertainties I can just repeat that we have not experienced any slowdown as well in Germany in start October. So we are happy with the net sales development.
And yes, I mean, we are somehow incorporating the macroeconomic uncertainties. Like I said, China locked down here and there. It’s very difficult to judge, and that’s the reason of how we came up with our full year guidance.
Thierry Cota
And just one-offs potentially in the Q3 EBIT, any sizable amount to mention? .
Christian Stohr
What is this? Any what?
Yves Muller
No, Thierry, nothing to call out.
Operator
Your last question for today is coming from Rogerio Fujimori at Stifel.
Rogerio Fujimori
I have just 2 quick follow-ups on current trading and gross margin. I think you talked a little bit about in general, but I was curious to hear about October trading also in the U.K. I think both is clearly decoupling from the broader retail trends we see. We know you had a flagship opening very important in Oxford Street.
So if you could talk a little bit about how you have been able to decouple from the broader retail trends we see in the U.K. would be great. And then on the gross margin for Q4, could you share some thoughts about how should we think about the building blocks relative to Q3 in terms of FX, the rate of change in sourcing cost inflation, the price increase, eventually any levels of promotional activity that you’re expecting to in Q4 would be great.
Yves Muller
Yes. Rogerio, for your questions regarding current trading. Yes, I think we have a very strong positioning actually overall in the U.K. We have a very, very high market share in menswear, where we are close to 10%. So our relative position in the U.K. is very, very strong. And yes, we have opened a new flagship store in Oxford Street.
Actually, we have a store event next week. And — but on the other side, I have to say that we closed the Regent Street for renovation. So there, actually, you can see overall that our U.K. performance is overall very, very strong. And actually, it underlines the fact that what I was saying that the stronger brands in these days perform much better than the weaker brands. And I think we look very good in the U.K. overall. Regarding gross margin, so first of all, when we first guided for this year, actually, we said it will be somehow stable versus last year.
Now for the first 9 months, we are actually 80 basis points above last year. We are at 62%, which is the top end actually of our CLAIM 5 guidance overall. So we are actually very much in line with what we are saying. And actually, this outperformance versus last year is clearly coming from higher full price, less discounting what we are doing at HUGO BOSS because of the spread momentum that we enjoy. And we actually expect the same moving parts for Q4 actually as well. Freight costs will be on an elevated level. U.S. dollar will be higher against the euro.
On the other side, we expect actually in comparison to last year’s lower discounts and higher full price sales. So this is actually more similar moving parts that you can expect for Q4.
Operator
There are no further questions at the moment. For closing remarks, I would ask the speakers.
Yves Muller
Yes. Thank you very much, and thanks, everyone, for dialing in today. This completes today’s conference call. As always, if there’s any further questions, please do not hesitate to contact any member of the Investor Relations team. So thank you for your participation. Take good care, and bye-bye.
Operator
Ladies and gentlemen, thank you for your attendance. This call has been concluded.
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