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Letter of the Managing Board

Dear Shareholders,
dear Readers,

2015 marked the sixth consecutive year of growth for HUGO BOSS. The Group increased sales by 9 percent to more than 2.8 billion euro. Excluding currency effects, growth amounted to 3 percent. Operating profit rose slightly to EUR 594 million. This represents new record levels on both metrics. However, trends slowed considerably over the course of the year. As a result of a challenging second half, financial results development over the last twelve months fell short of initial expectations. A difficult market environment contributed to this.

In Europe in particular, we delivered a strong performance against this backdrop. With sales up by 6 percent on a currency-adjusted basis, Europe remained the Group’s stronghold in 2015 again. The transformation of our business model towards our own retail business yielded further good results. As part of this process, we asked our wholesale partners to distribute the BOSS core brand solely in shop-in-shops going forward. Instead of the BOSS core brand, the range in multibrand department stores is now entirely comprised of the HUGO and BOSS Green brands. Together with the expansion of the store network – take our new store on Regent Street in London as an example – this change has strengthened the homogeneity and value of the brand presentation.

2015 was also a good year for our womenswear business. Under the guidance of Artistic Director Jason Wu, BOSS Womenswear has further built on its core skills in high-quality tailoring to design sophisticated and desirable products combined with a feminine aesthetic. The brand’s double-digit sales increase in 2015 underscores its growing acknowledgement among modern women, who are looking for versatile outfits addressing diverse occasions.

In 2016, we are facing difficult market conditions and rapid changes in consumers’ purchasing behavior. In tackling these challenges, we are building upon what has made us strong: a globally recognized, powerful brand, a well-oiled operational platform and a passionate workforce. The past few years have been very successful for HUGO BOSS. The Company has followed a customer-centric strategy based on expanding brand control and the Group’s global footprint. These elements will also remain cornerstones of our strategy going forward.

In the coming months, the improvement in the Group’s market position in China and the U.S. as well as the customer-focused enhancement of retail management are at the forefront of our activities.

In China, we are focusing on the continued upgrade and optimization of our retail presence and the further strengthening of the brand’s core in men’s formalwear. In doing so, we are also building on what the brand stands for in the eyes of the Chinese customer: High quality, fine craftsmanship and perfect fit. Effective from the recently launched Spring 2016 collection, we have lowered prices by around 20 percent to ensure our presentation is consistent globally. Reception by Chinese customers has been very positive in the first few weeks.

In the U.S., some company-specific challenges are compounding the current weakness of the local premium apparel market. In the wholesale channel, the Company will be limiting the distribution of the BOSS core brand to shop-in-shops. HUGO BOSS has a strong interest in managing these shop-in-shops itself in order to improve the quality of presentation. Such an agreement was entered into with the department store chain Macy’s at the beginning of the year. Besides, the Group is seeking to address the contemporary American consumer more effectively by expanding brand presence in digital channels and optimizing customer relation-ship management.

The website as the key digital channel plays an important role in adapting retail management to the changing purchasing habits of our customers. It is our key tool for informing and inspiring our visitors and for animating them to buy our collections. We achieve this by facilitating the access to our physical retail world as far as possible. This includes omnichannel services which we will also be offering in Europe from the second half of the year onwards. The insourcing of online fulfillment in early summer will be an important prerequisite for this.

Our financial outlook reflects these challenges. In the current year, the Group expects low single-digit currency-adjusted sales growth and a decline in operating profit. Against this backdrop, we are reviewing our cost structure and planned investments. Strict inventory management will support free cash flow generation as well. Beyond our financial development, we are mindful of our responsibilities as a global corporation and are continuously striving for improvement along the entire value chain. To this end we have set ourselves clear goals and defined them in our Sustainability Report.

More than ever, the Group is building on the outstanding dedication of its employees, whom we would like to sincerely thank for their work in the past year. They constitute the core of HUGO BOSS and are the basis for our confidence that the Group will emerge stronger than before from a difficult year in 2016.

Sincerely yours,
The HUGO BOSS Managing Board

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