Morning, everyone, and welcome to this Q and A session in conjunction with our Q1 reports, which was published today at 8 o'clock Central European Time. With me today, I have our CFO, Jyrki Tervanen, and ask you a brief introduction, and we will be happy to take your questions. As you all know, retail is going through a period of rapid transformation where customer behavior and expectations are changing fast as a result of growing digitalization. This is an accelerating development, which brings many challenges and also opportunities. We have a clear omnichannel strategy in which we are integrating the digital and physical worlds in order to offer customers a more seamless shopping experience.
In parallel, we're optimizing our store portfolio, and we're developing a new visual look for our H and M stores. At the same time, we are investing in our supply chain, such as in new logistics solutions, with greater levels of automation, but also in optimizing our lead times. In the changes we're making, advanced analytics will provide important support for decision making. This improvement will take effect gradually and advance our opportunities to achieve good performance going forward. Looking at the Q1, market conditions remained very tough for fashion retail in general in many of our large markets in Central and Southern Europe as well as in the U.
S. And this was also reflected in our sales. In other markets, however, sales developed well, including Sweden and the other Scandinavian markets, Eastern Europe, Turkey, Russia, China and Japan. Our brands, Kos and Other Stories, Monkey, Weekday and H&M Home continued to develop very well. And we had continued strong and profitable online growth for all the brands within the H&M Group.
We currently have 7 brands, each with their own unique identity. Today, we're very pleased to share with you that soon we will launch a new exciting brand, ARKit. R Kits will offer a broad yet selected range of essentials for men, women and children as well as selected assortment for the home. Most market stores will also include a cafe based on the new Nordic kitchen, its vision of quality ingredients and healthy living. The first store will open in London and online in 18 European markets in early autumn 'seventeen, followed by stores in Brussels, Copenhagen and Munich.
This was a short introduction. And now for the Q and A session. And in order to make it clear to the audience,
Your first question comes from the line of Cedric Le Caspo from Raymond James Paris. Please ask your question.
Yes, good morning, gentlemen. Thank you for taking the questions. I have a question on the gross margin. What was the slight expansion of gross margin markdown? What markdown impact do you expect in Q2?
I'm sorry, there's some noise here. Sorry about that. And second question, if I may, would be about supply chain initiatives to reduce lead times. Could you maybe help us understanding what was the main measures you are taking today? Thank you very much.
Yes. It's a very bad noise in the background. Could you Yes. Not in mobile maybe.
No, it's an alarm. It's an alarm in the office. It just ended. I'm sorry about that. Bad luck.
Okay. When it comes to markdowns in Q1, it's more or less in line what we expected and what we communicated in connection with the Q1 report. So 30 basis points, I think, we guided or anticipated 50 basis points higher as a percentage of sales compared to Q1 last year. When it comes to Q2 and markdown levels, it's far too early to give any guidance that because we still have the April May big important months ahead of us. But what we can say is that the stocking trade is higher than we planned for, and but the composition is good.
And so it's very important that we will have a good performance on the top line during April May and also depending on what the markdown activities is in the market in general. So that will be decisive when it comes to the reduction in Q2.
Got you. But how did you manage the slight improvement in Q1? What was the drivers for the positive drivers in Q1?
When it comes to the gross margin, there are so many different components affecting the underlying gross margin. But we as we always said, we are working with the sourcing environment and always trying But one But one shouldn't throw in too big overanalyzing the Q1. But when it comes to the gross margin, as we said, it's so many components affecting it. And but we are quite sure that we will not meet the situation that we have done in past year, 2016, where it was a really big swing when the U. S.
Dollar was very, very strong. You have to remember, still in Q2, when we are buying now, the dollar is more expensive than when looking at the euro, more expensive than last year.
And then regarding your second question was about lead times, right?
Yes.
And as I said, we are doing a lot of investments in the supply chain with more automatization, etcetera, and also working even closer with some our suppliers in order to speed up lead times even faster. We've been good business.
So and also when talking about lead times, it's it's speed buying, of course, and they're working even closer to the suppliers. But it's also just in time and different when we want to have just in time. We should have the ability to have just in time. When we need speed, we should have to buy with speed. So we are looking at all kinds of buy ins.
And we have a good sourcing and supply chain today. But as we stated in the report, we feel that we can even improve it now and especially considering the shift that is going on in the market. So we will work very hard on that, and we have a clear plan how to execute it.
And we see very interesting opportunities here because we have a store portfolio with, as you know, 4,400 stores across the globe, but we need our customers every day. Of course, with the online offering, and we combine this now. This is very exciting going forward.
Thank you, gentlemen. And apologies. It was a nice.
No problem.
Next question comes from the line of Nicholas Ekman from Carnegie Stockholm. Please ask your question.
Thank you. Yes, I'd like to start by asking about the comments here in the forward where you're talking about optimism here for the remainder of 2017. And I think this is in line with comments made by the CEO in association with the Q2 and Q4 results last year where you acknowledged that you've had some problems and that you have fixed them. And I'm curious where you are on this path of improving previous problems. It would be very helpful if you could elaborate a little bit on that topic.
Thank you.
Well, hi, Mikael. I wouldn't say it's problems as such. Again, we repeat more or less the same message that we still grow and we're doing a lot of progress. And there are, of course, many reasons for why we don't grow as fast as we planned to and partly the external factors as we've talked about and also things, of course, that we can do better. There are always things we can do better.
And we've never said we'd fix them. That's too easy. But we have identified them. We know exactly where we're going. And the results don't come overnight.
So that's the important thing.
Okay. And obviously, you mentioned a very challenging market here. A lot of retailers now are closing stores and some are closing stores on a rather big scale. You are doing the opposite. What makes you convinced that aggressive store openings is the continued way to go considering the rapid online migration?
Again, it's you put some words in my mouth. I wouldn't call it aggressive. I would say it's very thoughtful strategy that we have, the combination. It's not just about stores or online. It's the combination, as we said many times, and the integration of the omni channel strategy, which is very, very successful.
And of course, this is something we continue to develop. And when we look at the stores, as you said, a lot of peers are closing down and leaving their stores, which, of course, opens up opportunities. But we're talking about different things here because it's mainly free malls and these malls and not so attractive locations that is closing down. But we are always in the best locations and where there's still a big demand for space. And but of course, we work very tight with our landlords and we see very interesting opportunities still to grow this omnichannel strategy.
Okay, great. And finally, just a quick question. When you talk about significant investments in supply chain, is this a change from your message before signaling increased further increased investments? Or is this pretty much in line with the guidance you've given before about CapEx and investments in new product areas for 2017?
Yes. It's included in the CapEx that we have guided for, for 2017. I think we guided for SEK 14,000,000 to SEK 14,500,000,000. So it includes the investments connected to Logistic, etcetera.
Excellent. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Chiara Battistini from JPMorgan London. Please ask your question.
Good morning. Hi. Thank you for taking my question. Good morning. Hello.
Actually, my questions have been asked already. I just have one left. I was wondering whether you could quantify any calendar impact from annualizing Easter last year in your March trading update, please? Thank you.
Yes. Easter is always very difficult because it shifts from year to year, as you know, and also that the weather impact during the spring is very difficult to analyze. I mean, it moves around from year to year. And if you look at our historical monthly numbers in March, April, May, they're very volatile. So we repeat the message, you should see March, April, May together.
And also to make it more complicated, in some markets, Easter is good for trading. In some markets, it's negative. And then it depends on when it arrives early or late. So it's difficult even for us to analyze it.
Okay. Because I would have thought that last year, I thought the message was negative on the timing, I. E. March was negatively impacted by Easter, timing being early. And overall, there should be a negative impact on Easter?
And therefore, we should see
We gave more or less the same message last year. But of course, since March last year was disappointing, it was extraordinary cold weather throughout Europe and also I think in the U. S, which affected retail sales, not just for us. And of course, that was, by many others, connected to the early Easter. But as I said, very difficult to analyze.
Okay. Okay. Thank you very much.
The next question comes from the line of Charlie Muir Sands from Deutsche Bank London. Please ask your question.
Good morning, guys.
Good morning.
My first question relates to your expansion outlook where I think for the first time you've put in a paragraph alluding to optimizing the store portfolio and also indeed in the CEO's comments making particular reference to underperforming markets. I just wanted to yes, and at the net level, you're still talking about opening 430 stores. So I just wanted to clarify whether you're now planning on shutting more stores than previously and how that reconciles or whether that's something that's been happening for some time, you just felt worth calling it out now?
When it comes to the net openings for 2017, it's still 430 that we are planning for. But of course, we will it's a moving target. But more or less, that's the target for this year. But let's see, during the year, as Niels mentioned, there also comes up a lot of opportunities in this environment. But we will come back to that in connection with half year report when we have a much better view of the CapEx and the investments and store openings.
But so far, we will still aim for that figure.
But also to clarify, of course, store optimization is something we always do. And if you look back, we always have a lot of closure. But of course, this time, it's even more focused on it. And we see good results when we focus on this. So we have a lot of banners.
We can move around. We could add space sometimes. We could take away space. We could move stores. And this is a very interesting omcap potential.
And I think Sweden is a very good example of that. So last year, we opened 11 stores and closed 11, and we managed to grow top line at 7% in a very tough market.
Understood. And then my second question comes, I think you mentioned China in the list of companies that saw a better performance. Can you confirm whether you're now achieving positive like for like sales trends in China?
Yes, you're right. China was as you see, it was plus 20, I think, or 19 or something in local currencies in Q1, which is good. And we've had as you know, we've talked about this for many quarters now. It was we were not wasn't performing as we planned in regards to top line in 'sixteen. So that was a good start of 'seventeen.
But I think it's early days, and I think we shouldn't draw too much conclusions. We've seen a lot of things that we're working on and improving. But I mean, China still is something we're very happy with the general performance and how much we have expanded in a very short time, and we still see potential. But there are still things that we need to improve, absolutely.
Okay. But your store openings are faster than that 19%, aren't they? So are you cannibalizing yourself, do you think? Or are those incremental?
There's always cannibalization when we grow, but no, we were in positive like flight territory, absolutely.
Okay.
Question comes from the line of Adam Cochrane from UBS London. Please ask your question.
I've got a really simple question for you guys. Your sales performance in whether in Q1 or as we look into early March has been largely disappointing, yet your stock continues to build. Your markdown was lower than you gave guidance for, yet the stocking trade is always current season of the correct quality. At what stage do you have to work on reducing that inventory file? And how are you going
to about how will you
go about doing it, please?
Yes. As already mentioned, the markdowns in Q1 was more or less as we had planned for. And of course, if we can't perform top line in April May, then we have to make more aggressive markdowns. But it's far too early at this stage to have any guidance on that. And when it comes to the composition of the stock in trade, it's a lot of new spring garments in that.
And also, I don't know the word, seasonless garments that we can sell not so dependent on spring and summer. So the competition is good, but we admit that it's higher than we have planned for. And there is an obvious risk if we don't perform in April May that the markdowns will be higher in Q2 than last year.
Are you being more cautious with your buying budget for the second half compared to your sales expectations in order to reduce stock as a percentage of sales?
Of course, we are always trying to balance the stock we have and the buyings that we are doing ahead. And we have a flexible model. And of course, we don't want to risk the articles and that we don't get the new garments even. But always, we are reacting and balancing the stock we are bringing into the next period with the buyings, of course. So that's the normal way we are doing it and that we will, of course, focus on in the coming months as well.
So of course, it's both working with the existing stock, but also buying levels to make it as balanced as possible without risking any selling.
But this all connects to what we said about this ever or faster changing customer behavior. So that's what we said. And I said we need to become even faster in order to be even quicker in reacting due to the changing demands and expectations from our customers. And that's why we are pretty optimistic still about our the things we are doing and of course, also connected to the advanced analytics that we see a lot of interesting help from.
Okay. Final one. Where is all this extra stock sitting compared to a few years ago? Is it in warehouses? Is it on the shop floor?
Is it on a boat? Where is all this stock actually physically sitting compared to where it was 5 years ago?
Yes. First of all, if you do that comparison, around 5% of the value is in accounting effects since we have a different method of
It's almost SEK1.6 billion, SEK1.7 billion if you're looking 2 years back. It's an effect, as Nick said, from this accounting principle change.
Yes. And then it's spread all over, I mean, in the supply chain, in the DCs, in the call offs, as we say, in the stores, but mainly not always in the stores because that but so it's we have a flexible supply chain here with all the bleeding now.
It must be bursting to the seams rather than being flexible right now. I think there's a big question as to how it can actually be you're not sort of I can't work out how are you going to reduce that level of stock. You have to buy less than you sell. Is that the only way that the stock could be reduced? Or you make a big markdown?
As I said, it's a combination, of course, always to what you bring with you. Of course, you have to handle and balance the markdowns because it and of course, you have to also look into the buying levels ahead. But that we have to do in a balanced way because if we are cutting the buyings too much, of course, then the it might hit the top line ahead if we don't get in the new garments as quick as we want and in the right volumes. But of course, that's a normal retail environment to always find a balance with those to working with the existing stock, markdown levels and also looking into the buyings ahead without risking any top line.
And have you trialed in some markets clearing through the stock more quickly to see what the net impact is?
Absolutely. I mean, that's one of the advantages with having many different stores in the market. We can do continuously a lot of parallel tests, absolutely.
I assume you're not going
to tell me what happened. So I'll speak.
Thanks for your time.
I can tell you this. We're not sitting here waiting for better weather or something. There's a lot of work going on. I'm really impressed by my colleagues and all the work that's going on. So that's why we feel confident about the future.
Okay. Thanks a lot.
Welcome.
Your next question comes from the line of Simon Irwin from Credit Suisse London. Please ask your question.
Good morning, gentlemen. And could you just talk about what you think is happening to pricing in Europe this year? Obviously, there's lots of cost pressure over the past 12 months or so. Have your prices changed materially?
No, they haven't. Our price strategy remains the same. They always want to have the best combination of fashion, price and quality and sustainability. But it varies from market to market as always and of course, from concept to concept. And some markets are tougher.
Of course, in the U. K, with the sterling, there's specific challenges in the U. K. But this is an ongoing process and of course connected to the how currency moves and competition and etcetera. So we're on it.
Okay. And you talked about input costs for 2Q. But looking further out, are you seeing any easing in terms of dollar buying conditions given relatively soft demand as we're hearing from some of your peers?
It depends. I mean, it's still if you just look at these certain factors like currency and supplydemand capacity, transport, etcetera, the aggregated market conditions are still slightly negative. But there's been misalignment. Of course, we always try to grow our best, mitigate that and to try to find new efficiencies and economies of scale, etcetera. Okay.
And just going back to what you were saying earlier, Niels, about being quicker to market in the future and presumably that would mean having less inventory. I mean roughly what kind of level of inventory do you think you can aspire to? I mean if I look at your business at the moment, inventory has doubled in 3 years and you've gone from kind of 100 days of inventory to 100 and 30. I mean, what do you think would be a good result in, let's say, 2 years' time under your new model?
Well, as Jyrki said, this is tricky because it's a balance. If you cut too much, if you got too lean, you miss out, you risk missing out the top line. So you have to be very, very cautious and careful when you do this and really to balance that. But obviously, with our experience and the benchmarks, we have clear targets of where we want to be and what we can achieve. And
it's of course, all the work we are doing within the supply chain is, one is, of course, aiming to sell more with less stock. And we see a potential in that area for sure. We have a good model, but we can improve it much more in the coming years.
And actually coming back to this advanced analytics, it's very exciting because with these algorithms, etcetera, it gives us a much better support to forecast the demand in a more precise way, which, of course, increases the chances of being even stronger regarding top line and reduce the markdowns.
Okay. Since nobody's asked you about OpEx, that looks surprisingly well controlled given that my understanding is it's quite difficult to cut store hours, for example, in January, February when things are already very quiet. What have you done within the OpEx line this year to achieve that result?
We feel that we have always been good in balancing the costs when the turnover is not maybe performing as planned. But it's really you have to be careful that you don't start to cut cost in areas that will lead to negative effects on the core business. So it's of course, you can cut it easily to cut costs, but you have to do it in a wise way and try to find the flexibility and the actions within the organization to cut those costs. That is not affecting top line. And I think we have a really strong history.
People have done it over the years so many times. It's the way we are working. So that's the reason why we are almost always performing good on the OpEx.
Okay. Thank you very much.
Thank you. The next question comes from the line of Andreas Inderst from Macquarie London. Please ask your question.
Yes, it's Macquarie. Good morning, everyone.
I have
a question on your March performance. You said earlier we have to look more into March, April May together. Makes sense to me. But still, I would like to know whether March sales is actually in line with your budget or below or even above? That's my first question.
And then the second question is on the inventory build up, plus 28 percent versus 24% FX adjusted in the previous quarter versus 7% to 8% sales growth. So there is a rising gap here. Now you already discussed that in earlier questions. But still, I'm wondering how much of the inventory is still related to, let's say, winter stocks or stuff you can't really sell in March, April? Maybe you can quantify that.
And my third question relates to ARKET, your new concept. What's the medium term potential here in terms of number of stores, maybe even sales? Maybe you can elaborate here as well. Thank you.
Yes. We start with the stock. As we said, we admit that the stock level is higher than we have planned for. But as I said, the composition is good, but the level is too high, but it's also including seasonless garments. So but of course, in Q2, if we don't perform in April May, we should look at the months together.
If we don't perform them, then it's obvious that there is a risk for higher markdown levels in order to get in the new garments in the stores. And when it comes to March figure, we have planned for higher figure than in March. So but as you said, we should look at March, April, May together.
And regarding the new brand, Arclipt, right? Very exciting. And we think it's important that it's both stores and online to start with. So it's 18 online markets. And I think it was 5 physical markets this year in Europe.
Now I'm sorry, I have to correct that, but it's in Europe at least. The number of stores is too early to say. But if you look at costs, we have now more than 200 cost stores and that is now 10 years old that brand. And other stores, which is new, we have around 50 stores. So I think that gives a more rough idea of the expansion plans.
Okay. That's helpful. Just a follow-up question on the composition of your inventory. So how much is winter stock of the total precision? Can you quantify that?
To confirm not to quantify, but of course, it's some parts, but the composition is on the same. We have the same with the new summer spring garments in the stocking trade. So but we prefer not to quantify exactly what's winter. But as I said, it's higher than we planned, and but we have a good way of balance it out. And as I mentioned, it's both in markdown levels, but also in buyings ahead.
Okay. Good. Wonderful. Thank you.
The next question comes from the line of Nicholas Farr from SEB Equity Research. Please ask your question.
Thank you and good morning.
Good morning. Good morning. Could I just go back to the question on OpEx? And more specifically, you just announced you're launching a new brand this fall. And I was wondering if you could give us any idea of sort of the costs involved that you've already charged to your P and Ls?
And for sort of what time period have you actually been investing to set this business up? That would be very helpful.
Yes. As you know, we have this group we call new business at H and M that has a lot of different a lot of exciting things going on. You know, most of them, and we've been talking for a while now about at least 1 or 2 new brands that we're working with them. This is one of them. And I think they've been working with us for at least 1.5, 2 years, something like that.
The idea came up a couple of years ago. Gradually, that's up the organization in the space. So it's but to quantify, no, I need to do that because it's this is part of the long term investments we've been talking about so much.
That's perfect, Nils. And I didn't expect a number either. But if you compare this sort of these ideas and costs that you've taken, are they to the similar tune of the costs you took when you launched ahead of the launch of, say, Stories or Costs or something like that?
More or less, I would say, yes.
Okay. Okay. Thank you. Then the second question, and sorry if I'm being too detailed now, but I need to go back to understand, and it's probably going to
fall back on me anyway, but
to understand the March trading. If you go back a year, you had a very early Easter, 25th March, which also happened to be sort of the payday. You had poor weather. And at the end of the day, you reported a quite, quite negative development in comp stores last year. Obviously, this year, there is no Easter in the same week.
The weather, as the chart I'm looking at is telling me, has been fairly nice. It's been the temperature anomaly is suggesting a slightly warmer weather in particularly in Europe. And there was also a payday, the 24th this year, going into the same week year on year. And yet, it seems like your number of 7% is more in line with, say, the weekly polls coming out of Germany, whereas you could have expected some sort of outperformance. So a very long question, but do you actually think when you've done your own in house analysis that there's anything else than sort of external factors included in the 7% number, if you talk about collections and designs and whatever you have, please?
Again,
I repeat, you should look at March 8, a little bit, together. But of course, the things we're talking about, the reason why we explained Q1, I mean, it's very much the same passing on into Q2, of course. And the things we're working with remain the same. And as I said, the results don't come overnight, Obviously, we progress. And that's why we're going forward, we still we will continue and we have the strong belief in what we do.
But it's, of course, in a monthly number, it's always very difficult to you shouldn't over analyze it.
Final quick question. You said that about 5% of the stock and trade increase in the period is due to the new accounting. Would you be so kind to give us an idea of the currency impact, please?
Yes. And I said 5% of the value, not the year on year increase. If you go back, the question was compared to 5 years ago, and then you must compare apples and apples and around 5% in the value of this year compared to 5 years ago or 2 years ago before we introduced this new process to take into consideration. And then your question was
Well, basically, I misunderstood your answer.
Yes, the currency. It was around 2% I think difference in SEK and local currency.
Yes. Local currency, the stock in trade increased by a close 28% and in SEK 30%.
Yes. And is there a year on year increase from change in accounting, please?
Not really. Okay.
Okay. Thank you very much.
The next question comes from the line of Anne Critchlow from SG London. Please ask your question.
Thanks and good morning. My first question is about how much of the increase in stock in trade is related to the rollout of online, I mean, particularly year on year, but also maybe over the past couple of years?
Right. I don't think you could blame or refer to online as such. I think there are various other reasons for it, as Jyrki said. I mean, we have had a stronger belief in top line than we've achieved, but that's the main reason. If you can't really explain it through that there's a channel specific reason.
Of course. Then it's more connected to the expansion. I think we will we are opening 6 new online markets in the first half year. So of course, we have to build up stock for them to be prepared when we open the store. So of course, there is an effect connected to that.
Okay. But is it significant in the increase in inventory year on year?
Not so insignificant. It's quite normal business, and it's a momentum thing. And as we start to sell, it will even out.
Thank you. That's clear. My second question is about the ARKET price range. You say it's a broad price range above the level of H and M. But how would it compare to, say, monkey and costs and stories?
Yes. I think more it's more like costs and stories.
The next question comes from the line of Gustaf Sandstrom Sandstrom from
Stockholm. I have a question. I know you briefly touched upon it, but the Chinese growth, which you had we talked about this already last quarter that you saw some signs of improving markets and now obviously very strong momentum there. Could you quantify a bit how much of this relates to the online channel and offline channel? And if there's this is a general market improvement or if there's something that you've been doing from your end that is driving this growth?
Thank you.
As I said, we shouldn't draw too many conclusions of that. It's a positive, and we're happy for that. But it's a combination of many factors, and we're still working hard on a lot of improvements in China, including online and the cannabis and mortar business. Okay, thanks. You're
welcome. Thank you. The next question comes from the line of Jeff Rizzo from Morgan Stanley London. Please ask your question.
Yes, morning. As I calculated, I think you've got about DKK 6,400,000,000 of net cash on your balance sheet now. You've got to pay a dividend of, I guess, about DKK 16,000,000,000 next quarter. Would you have been able to do that if you hadn't taken out the OCF?
Yes. We have a cash balance of SEK 8,400,000,000 and I think external loans SEK 1,200,000,000 out of that. And the dividend, the proposal from the Board of Directors to Annual General Meeting is to pay a dividend of 9.75 dollars per share. And the proposal is also that it will be paid in 2 installments, 1 in May and the second half in November. So we think it's a good proposal, and it's in our plans, and we will keep on with our strategy to invest in those areas.
So we have a strong financial position. So we don't see any big issues with that.
Okay. And have you drawn on the RCF during the period?
From the RCF. RCF. No, no, we haven't.
Thank you. The next question comes from the line of Charlie Muir Sands from Deutsche Bank Lending. Please ask your question.
Hi. I just had 2 very brief follow-up questions for topics that we've already discussed. The first one, and I'm sorry to keep going on about March sales, but am I correct in understanding there should have been a positive calendar shift in the month of March and likely a negative calendar shift in April?
No, we haven't said that. We said that you should see March, April and May together. It's very difficult to analyze the calendar. You can't just look at the open trading days because of the Easter and other things. It's very complex.
Sorry, I can't be clear on that.
Okay. And then the second question relates to the operating costs and the tight control there. Were there any particular one off reductions or savings in there, for example, around phasing of long term costs or anything else like that that helped you manage cost growth?
No, no. Nothing one time or two. No.
Okay. Thanks
very much. Cost consciousness.
Thank you. The next question comes from the line of Janice Ku from Bloomberg News, Janice Ku. Please ask your question.
Hi, good morning. Good morning. I wanted to ask a little bit more about Arqette. In the statements, it says that it will be supported by external brands. And I was just wondering if you could comment on that.
I also wanted to make sure I understood what I'd read in the statement what I'd read into this in the statement was that our Cape is going to target primarily large European cities in terms of store openings. Could you clarify if that's correct?
First question regarding external brands, that's correct. Some examples for sneakers from Vega, men's shoes from Kookers and RM Williams and Peppermill from Peugeot. Your second question, I didn't quite hear you're in line with that. So could you repeat, please?
Sure. I just wanted to make sure I understood correctly in terms of the cities that will be targeted for store openings. It looked like they would be large European cities. Is that correct?
Yes. I think we mentioned to start with London, and then we have Brussels, Copenhagen and Munich during 2017.
Sure. So is that would we expect more of the same in terms of future openings that the focus area is sort of Central or Southern Europe?
Yes, Pramen, but we will come back to that later.
And also, we will open up 18 online market also in connection with the launch.
So in terms of Arquette, I mean, what is really different about this brand? What are you how are you differentiating us?
Yes. It's the way they put it, it's a modern day market, which offers a broad range of essentials for men, and this is important. If you compare to cross, for example, men is a smaller part. This is very much for men, women and children and a smaller, small assortment for the home. It's simple, timeless and functional design with high quality.
I think in a lot of classical garments, such as peaco, trench coat, etcetera, and scrub sweater. And everything, you find it broad, sort of from very relaxed to well dressed. And there will also be a cafe, as we mentioned, which is very interesting with the connection to the Nordic modern Nordic kitchen.
Thank you. Is there time for me to just ask one follow-up question on something that was asked earlier?
Absolutely.
Just in terms of the optimization of the store portfolio, I was wondering if you could comment at all or detail any of these markets in terms of those that weren't performing sufficiently well and where you could intend to do rebuilds or increase store
space? Okay. This is something we do in every market. And I mean, this is and we always do it. It's not something dramatic.
But of course, it goes without saying that in these times, with this fast shift we have from the digitalization and the customer needs and expectations. We look we need to look over the support parking even further, and we have a lot of opportunities here. As I said, with all the banners we have now and with our brand strength, we could, as I said, in some cases, add space, sometimes take away space or move to better location or better mall. So that's, again, business as usual, but even more intensified and even more opportunities, I would say.
Thank you.
Next question comes from the line of Michelle Wilson from Berenberg London. Please ask your question.
Hi, good morning.
Good morning.
I just have two questions. First of all, on the advanced analytics, I understand the benefits that can give you in terms of demand forecasting. But I just want to understand in terms of your supply chain, does it have the flexibility to be able to actually adapt to the data that you're getting from doing that? And could you give us an indication of your average lead times on your sourcing? And then secondly, just want to understand around the revenue target.
So you gave us guidance for the full year of a revenue target of 10% to 15%. Do you still think that target is achievable following Q1 results?
Right. If you start with the advanced analytics, yes, it will support and help us in various fields of the business, also including supply chain through algorithms, etcetera, in order to be more specific when it comes to allocation, for example, more relevant to the each store in a much more advanced way than in our past tools that we've had, so to speak. So there's a lot of interesting things in trials going on, which will help to support this demand. When it comes to revenue target, I mean, the target remains in trend, of course, to the 10% to 15% growth. But of course, with the 4 months we've had so far this year, it's going to be, of course, more difficult to reach it this year.
But we are still aiming for that. But as Neil said, it's for sure tougher when the Q1 and even March was much tougher than we expected.
Okay. And just a follow-up. Are you able to give your average lead time on sourcing, so from kind of designing a product to when you can get it into your stores or onto your website?
Lead times is very much an misinterpreted word, I would say, because of course, it can be very fast in some cases. I mean, it's a total of couple of weeks. But in some cases, it's longer because you don't need to be that quick on a basic garment, for example. So now we don't give an average, but we can be very quick. But I also prefer to talk more about reaction times.
And that's even more important now with the shift between the digitalization and the online customers expect to get things now in real time. And that's why we're very excited that we can now offer next stage delivery, for example, even same delivery sometimes. So really, you click now and you get it in a matter of hours or days, very exciting.
Okay. Thank you.
Thank you. The next question comes from the line of Richard Chamberlain from RBC Capital Markets. Please ask for your question.
Yes, thanks very much. Good morning, guys.
Good morning, Lee.
Question on the strategic initiatives of H and M. I mean, clearly, sales have ran a little bit below plan so far this fiscal year for a variety of reasons. But the changes you're making to your omnichannel offer and supply chain and data analytics and so on, I mean, which of those would you expect to have more impact in later this fiscal year, so Q2 or second half? I mean, should we expect any of those in particular to start impacting the sales line?
Or we have to wait,
you think, for next year or even longer?
As I said, things don't change overnight. But I would say some of them, we already have implemented and we see the effects from and some of them have been here now and some even further, I mean, down this year or next year. So this is a process going on. I mean, as I said, the digitalization is changing not just fashion apparel, it's changing the whole society. And of course, we know exactly where we're going, but we're not there yet, but we are taking a lot of steps and measures in order to get there.
Okay. And just going back to the improved performance in China, what would you attribute that to? Is that market recovery? Or are you having more success at adapting the offer better for the smaller cities over there? Was it a combination of both?
Yes.
I'll just repeat what I said before. It's a combination of many things. And I mean, clearly, last year, we didn't perform from a top line perspective as well as we planned in China. We talked about this many times. And a lot of things we have done in order to adjust any food, and part of that has continued.
But again, still remains a lot of things that we are want to do and improve. So again, we shouldn't draw too many conclusions on just the quarter.
Okay, great. And just one quick one final one. On the revolving credit facility that you've signed, I think it's on Page 8. I mean, I assume that was done on extremely favorable credit terms.
Yes, that's correct. Yes, that's correct. Without going into details, of course, as we mentioned, we are able to borrow from money market with negative rents. So that means actually that we get paid for borrowing money. And of course, with our strong financial position, we also get good terms when it comes to revolving credit facility.
So we are happy with that.
Sure, sure. Okay. Thanks very much.
The last question comes from the line of Anne Critchlow from SG London. Please ask your question.
I just want to check please how many markets customers can make online returns to store in now?
Let me see now with the latest Spain and Sweden, 1, 2, 3, 4, 5, 6, 7, 8, 19, 11, 12, 13 or 14 markets at the moment.
Thanks very much. And then just one final question. Do you think the core customer at H and M is getting older or has become has got older over the years? I think that you traditionally targeted 20 somethings, but do think that age range is drifting up?
I think we are attracting customers from all over the age range, from newborn to my father who is 94, but young at heart is the word, right? So everyone is welcome. So I don't think there is a particular change in the profile.
Okay. Thanks very much.
You're welcome.
Thank you. You have one final question from the line of Paul Rossington from HSBC London. Please ask your question.
Good morning, gents and well done on the numbers today. One quick question on the SG and A again, just a follow-up. Could you outline if there is any beneficial impact to SG and A from the churn in the store portfolio? I presume that you are negotiating lower rents on the leases that come up for renewal in existing markets. Is that perhaps a bigger factor in SG and A than perhaps trying to reduce staff hours, for example, or something like that?
It's a combination. Of course, in this environment, we get better terms when it comes to rent setups and etcetera. So it's a combination of working with balancing out the hours in stores, looking into a lot of different costs within the organization. But as you said, for sure, also good terms when it comes to rents.
Sorry for the boring question.
So thank you We have no
questions at this time.
Okay. So thank you for all your questions and for joining us today. And of course, as usual, if you have further questions, I will be available during the day. And we wish you all a good day.