Good morning, everyone, welcome to this Q&A session in conjunction with our Q1 report, which was published today at 8 o'clock Central European Time. With me today, I have our CFO, Jyrki Tervonen, after a brief introduction, 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. Sorry. This is an accelerating development, which brings many challenges and also opportunities. We have a clear omni-channel 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, we're developing a new visual look for our H&M stores.
At the same time, we're investing in our supply chain, such as in new logistics solutions with greater levels of automation, 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, enhance our opportunities to achieve good performance going forward. Looking at the first quarter, 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., 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 COS and & Other Stories, Monki, Weekday, and H&M Home continued to develop very well, we had continued strong and profitable online growth for all the brands within the H&M Group. We currently have seven 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, ARKET. ARKET will offer a broad yet selected range of essentials for men, women, and children, as well as selected assortment for the home. Most ARKET stores will also include a café based on the New Nordic Cuisine and its vision of quality ingredients and healthy living. The first store will open in London, online in 18 European markets in early autumn 2017, followed by stores in Brussels, Copenhagen, and Munich. This was a short introduction, now for the Q&A session.
If you would like to ask a question, please press star one on your telephone, in order to make it clear to the audience, please state your name and company, please only ask one question at a time. Moderator, please go ahead.
Thank you. Your first question comes from the line of Cédric Lecasble from Raymond James Paris. Please ask your question.
Yes, good morning, gentlemen. Thank you for taking the questions. Actually, I have a question on the gross margin. What was the slight expansion of gross margin despite the negative impact of the markdown? What markdown impact do you expect in Q2? I'm sorry, there's some external noise here. Sorry about that. The second question, if I may, would be about supply chain initiatives to reduce lead times. Could you maybe help us understanding what are the main measures you're taking today? Thank you very much.
Yeah. Oh, it's a very bad noise, in the background. Could you go off mobile maybe?
No, it's an alarm in the office. It just ended. I'm sorry about that. Bad luck.
When it comes to markdowns in Q1, it's more or less in line with what we expected and what we communicated in connection with the Q1 report. 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 for that because we still have the April and May bigger important months ahead of us. What we can say is that the stock-in-trade is higher than we planned for, but the composition is good. It's very important that we will have a good performance on the top line during April and May, and also depending on what the markdown activities is in the market in general.
That will be decisive when it comes to the reduction plans in Q2.
Got you. How did you manage the slight improvement in Q1? What was the positive drivers in Q1?
When it comes to the gross margin, there are so many different components affecting the underlying gross margin. As we always said, we are working with the sourcing environment and always trying to find efficiencies and then making a good deal over there, of course, and also always looking into the customer offering on each market. One shouldn't go in too big overanalyzing the Q1, but when it comes to the gross margin, as we said, it's so many components affecting it. 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 US dollar was very strong. You have to remember still in Q2 when we are buying now, the dollar is more expensive, when looking at the euro, more expensive than last year.
Okay.
regarding-
Yep.
The second question was about lead times, right?
Yep.
Yep.
As I said, we are doing a lot of investments in the supply chain with more automatization, et cetera, and also working even close with some of our suppliers in order to speed up lead times even faster. We're seeing good results.
Also when talking about lead times, as Nils said, it's speed buying, of course, and working even closer to the suppliers, 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 the ability to buy with speed. We are looking in all kind of buy-ins, and we have a good sourcing and supply chain today. As we've 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. We will work very hard with that, and we have a clear plan how to execute it.
We see very interesting opportunities here because we have a storefront value with, as you know, 4,400 stores across the globe where we meet 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 for the noise.
No problem.
No problem.
The next question comes from the line of Niklas 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. 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. 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, Niklas. I wouldn't phrase it problems as such. Again, we repeat more or less the same message, that we still grow, and we're doing a lot of progress. There are, of course, many reasons for why we don't grow as fast as we planned to, and partly the external factors that we talked about and also things, of course, that we can do better. There are always things we can do better. We never said we had fixed them. That's too easy. We have identified them. We know exactly where we're going, and the results don't come overnight. That's the important thing.
Okay. 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, you put words in my mouth. I wouldn't call it aggressive. I would say it's very thought through 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 and the omni-channel strategy, which is very successful. Of course, this is something we continue to develop. 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. We're talking about two different things here because it's mainly C malls and D malls and not so attractive locations that is closing down. We are always in the best locations and where there is still a big demand for space.
Of course, we work very tight with our landlords, and we see very interesting opportunities there to grow this omni-channel strategy.
Okay, great. Finally, just a quick question. When you talk about significant investments in supply chain, is this a change from your message before signaling further increased investment? Or is this pretty much in line with the guidance you've given before about CapEx and investments in new product areas for 2017?
Yeah. It's included in the CapEx that we have guided for 2017. I think we guided for SEK 14 billion-SEK 14.5 billion. It includes the investments connected to logistic, et cetera.
Excellent. Thank you very much.
Thank you.
Thank you.
Thank you. The next question comes from the line of Chiara Battistini from J.P. Morgan, 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.
Sure.
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. If you look at our historical monthly numbers in March, April, and May, they're very volatile. We repeat the message: you should see March, April, and May together. Also to make it more complicated, in some markets, Easter is good for trading, in some markets, it's negative. It depends on when it arrives early or late. It's difficult even for us to analyze it.
Okay. Last year I thought the message was negative on the timing, March was negatively impacted by Easter timing being early. Overall, there should be a negative impact on Easter.
We gave more or less the same message last year.
Okay.
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 retailers, not just for us. Of course, that was by many hours connected to the early Easter. As I said, it's very difficult to analyze.
Okay. Thank you very much.
The next question comes from the line of Charlie Muir-Sands from Deutsche Bank, London. Please ask your question.
Hey, good morning, guys.
Good morning.
My first question relates to your expansion outlook, where I think for the first time you put in a paragraph alluding to optimizing the store portfolio, and also indeed in the CEO’s comments, making particular reference to underperforming markets.
Okay. Sorry, could I just-
Yeah. At the net level, you're still talking about opening 430 stores. 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 it worth calling it out now.
When it comes to the net openings for 2017, it's still 430 that we are planning for. Of course, it's a moving target, but more or less that's the target for this year. Let's see, during the year, as Nils mentioned, there also comes up a lot of opportunities in this environment. We will come back to that in connection with the half-year report when we have a much better view of the CapEx and the investments and store openings. So far, we will still aim for that figure.
Also to clarify, of course, store optimization is something we always do. If you look back, we always have a lot of closures. Of course, this time it's even more focused on it, and we've seen good results. When we focus on this, and we have a lot of banners we can move around, we could add space sometimes, we could take away space, we could move stores. This is a very interesting untapped potential. I think Sweden is a very good example of that, where last year we opened 11 stores and closed 11, and we managed to grow top line with 7% in a very tough market.
Understood. 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, as you see, was +20, I think, or 19 or something in local currencies in Q1, which is good. As you know, we've talked about this for many quarters now, it wasn't performing as we planned in top line in 2016. That was a good start of 2017. I think it's early days, and I think we shouldn't draw too much conclusions. We still a lot of things that we are working on and improving. 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. There are still things that we need to improve, absolutely.
Okay. Your store openings are faster than that 19%, aren't they? Are you cannibalizing yourself, do you think, or are they incremental?
There's always cannibalization when we grow. No, we were in positive like-for-like territory, absolutely.
Okay.
Question comes from the line of Adam Cochrane from UBS, London. Please ask your question.
Morning. I've got a really simple question for you guys. Your sales performance, 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 stock-in-trade is always current season of the correct quality. At what stage do you have to work on reducing that inventory file, and how will you go about doing it, please?
Yeah. As already mentioned, the markdown in Q1 was more or less as we had planned for. Of course, if we can't perform top line in April and May, we have to make more aggressive markdowns. It's far too early at this stage to have any guidance on that. When it comes to the composition of the stock-in-trade, it's a lot of new spring garments in that. Also, I don't know the word, season-less garments that we can sell not so dependent on spring and summer. The composition is good, but we admit that it's higher than we had planned for. There is an obvious risk if we don't perform in April and 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. We have a flexible model, of course, we don't want to risk the articles and that we don't get the new garments in, always we are reacting and balancing the stock we are bringing into the next period with buyings, of course. That's the normal way we are doing it, that we will, of course, focus on in the coming months as well. 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.
This all connects to what we said about this ever or faster changing customer behavior. That's what we said, I said we need to become even faster in order to be even quicker in reacting to the changing demands and expectation from our customers. That's why we are pretty optimistic still about the things we are doing. Of course, also connected to the advanced analytics that we see a lot of interesting happen.
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 five years ago?
Yeah. First of all, if you do that comparison, around 5% of the value is in accounting effect, since we have a different method of, as we talked about for input-
It's almost SEK 1.6 billion, SEK 1.7 billion. If you're looking two years back, it's an effect, as Nils said, from this accounting principle change.
Yeah. It spread all over in the supply chain, in the DCs, in the call-offs, as we say, and in the stores. Maybe not always in the stores. We have a flexible supply chain, even though you don't believe me 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. 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 can 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, balance the markdowns. Of course, you have to also look into the buying levels ahead. That we have to do in a balanced way, because if we are cutting the buyings too much, of course, then 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. Of course, that's a normal retail environment to always find a balance with those two, working with the existing stock, markdown levels, and also looking into the buyings ahead without risking any top line.
Have you trialed in some markets clearing through the stock more quickly to see what the net impact is?
Absolutely. That's one of the advantages with having so many different stores and markets, we can do continuously a lot of parallel tests. Absolutely.
I assume you're not going to tell me what happened. I'll say 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, and I'm really impressed by my colleagues and all the work that's going on. That's why we feel confident about the future.
Okay. Thanks a lot.
Welcome.
The next question comes from the line of Simon Irwin from Credit Suisse, London. Please ask your question.
Good morning, gentlemen. Can 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. That we always want to have the best combination of fashion, price, and quality, and sustainability. It varies from market to market as always, and of course, from concept to concept. Some markets are tougher. Of course, in the U.K. with the sterling, there's specific challenges in the U.K. This is an ongoing process, and of course, connected to how currency moves and competition, and et cetera. We're on it.
Okay. You talked about input costs for 2Q, looking further out, are you seeing any easing in terms of USD buying conditions given relatively soft demand, as we're hearing from some of your peers?
It depends. If you just look at the external factors like currency and supply and demand capacity, transport, et cetera, the aggregated market conditions are still slightly negative. In this alignment, of course, we always try to do our best to mitigate that and to try to find new efficiencies and economies of scale, et cetera.
Okay. Just going back to what you were saying earlier, Nils, about being quicker to market in the future. Presumably that would mean having less inventory. Roughly what kind of level of inventory do you think you can aspire to? If I look at your business at the moment, inventory has doubled in three years. You've gone from kind of 100 days of inventory to 130. What do you think would be a good result in, let's say, two years' time under your new model?
Well, as you said, this is tricky because it's a balance. If you cut too much, if you are too lean, you risk missing out the top line. You have to be very cautious and careful when you do this. Really it's a balance act. Obviously with our experience and the benchmarks, we have clear targets of where we want to be and what we can achieve.
Of course, all the work we are doing within the supply chain, one is, of course, aiming to sell more with less stock. We see a potential in that area for sure. We have a good model, we can improve it much more in the coming years.
I keep coming back to this advanced analytics. It's very exciting because with these algorithms, et cetera, it gives us much better support to forecast the demand in a more precise way. 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.
Yes.
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. You have to be careful that you don't start to cut costs in areas that will lead to negative effects on the core business. Of course you can cut. It's easy to cut cost, 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. That, 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. That's the reason why we are almost always performing good on the OpEx.
Okay. Thank you very much.
Welcome.
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.
Good morning.
I have a question on your March performance. You said earlier we have to look more into March, April, and 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. The second question is on the inventory build up, +28% versus 24% FX adjusted in the previous quarter, versus 7%-8% sales growth. There is a rising gap here. 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 stock, so stuff you can't really sell in March, April. Maybe you can quantify that. 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 had planned for, as I said, the composition is good. The level is too high, but it's also including season-less garments. Of course, in Q2, if we don't perform in April and May, we should look at the months together. If we don't perform then it's obvious that there is a risk for higher markdown levels in order to get in the new garments in the stores. When it comes to March figure, we had planned for a higher figure than in March. As you said, we should look at March, April, May together.
Regarding the new brand, Arket, right? Very exciting. We think it is important that it's both stores and online to start with. It's 18 online markets, I think it was five physical markets this year in Europe. No, sorry, I have to correct that, it's in Europe at least. The number of stores is too early to say. If you look at COS, we have now more than 200 COS stores, and that brand is now 10 years old. & Other Stories, which is new, we have around 50 stores. I think that gives you a rough idea of the expansion plans.
Okay. That's helpful. Just a follow-up question on the composition of your inventory. How much is winter stock of the total position? Can you quantify that?
I prefer not to quantify, of course it's some parts, the composition is on the same. We have the same ratio with the new summer spring garments in the stock-in-trade. We prefer not to quantify exactly what's winter. As I said, it's higher than we planned, we have a good way of balancing it out. 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 Nicklas Fhärm from SEB Equity Research. Please ask your question.
Thank you, good morning.
Morning. 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 the costs involved that you've already charged to your P&Ls, and for what time period have you actually been investing to set this business up? That would be very helpful. Thank you.
Yes. As you know, we have this group we call New Business at H&M that have a lot of exciting things going on. Most of them we've been talking for a while now, but at least one or two new brands that we are working with, and this is one of them. I think they've been working with this for at least one and a half, two years, something like that. The idea came up a couple of years ago. Gradually it's backed up the organization and the space. To quantify, no, I really can't do that because this is part of the long-term investments we've been talking about so much.
That's perfect, Nils. I didn't expect a number either, if you compare these ideas and costs that you're taking, are they to the similar tune of the costs you took ahead of the launch of, say, Stories or COS or something like that?
More or less, I would say, yes.
Okay. Thank you. The second question, sorry if I'm being too detailed now, but I need to go back to understand, 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 of March, which also happened to be the payday. You had poor weather, and at the end of the day, you reported a 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, it has been fairly nice. The temperature anomaly is suggesting a slightly warmer weather, particularly in Europe. There was also a payday, the 24th this year, going into the same week in year-over-year.
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. A very long question, do you actually think when you've done your own in-house analysis that there's anything else than 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, April and May together. Of course, the things we are talking about, the reason why we explained Q1, it's very much the same pattern going into Q2, of course. The things we are working with remain the same. As I said, the results don't come overnight. It's, of course, in the monthly numbers, it's always very difficult to, you shouldn't overanalyze, I think.
Final quick question. You said that about 5% of the stock-in-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. I said 5% of the value and not the year-on-year increase. If you go back, the question was compared to five years ago. You must compare apples with apples, and then around 5% in the value this year compared to five years ago, or two years ago, before we introduced this new process, take into consideration. Your question was? Sorry.
Well, basically, I misunderstood your answer.
The currency. Yeah, the currency. It was around 2%, I think, difference in SEK and local currency. Yeah, local currency, the stock-in-trade increased by approx. 28%, and in SEK it's 30%.
Is there a year-on-year increase from change in accounting, please?
Not really.
Okay. Thank you very much.
Okay.
The next question comes from the line of Anne Critchlow from SG London. Please ask your question.
Thanks. Good morning. Hi. 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-over-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. We have had a strong belief in top line that we've achieved. That's the main reason. You can't really explain it through that there's a channel-specific reason. Of course, it's more connected to the expansion. I think we are opening six new online markets in the first half year. Of course, we have to build up stock for them to be prepared when we open the store. Of course, there's an effect connected to that.
Okay. Is it significant in the increase in inventory year-over-year?
Not so insignificant. It's quite normal business. It's a momentum thing. 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&M, but how would it compare to, say, Monki and COS and Stories?
Yes, I think it's more like COS and Stories.
Okay, very helpful. Thank you.
Yep.
Thank you. The next question comes from the line of Gustav Sandstrom from Stockholm. Please ask your question.
Yes, Gustav Sandstrom, Deutsche Bank. Good morning, everyone. 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 is related to the online channel and offline channel? If 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. It's a combination of many factors, and we're still working hard on a lot of improvements in China, including online and the brick-and-mortar business.
Okay, thanks.
Welcome.
Thank you. The next question comes from the line of Geoffrey Ruddell from Morgan Stanley, London. Please ask your question.
Yeah, morning.
Morning.
As I calculated, I think you've got about SEK 6.4 billion of net cash on your balance sheet now. You've got to pay a dividend of, I guess, it's about SEK 16 billion next quarter. Would you have been able to do that if you hadn't taken out the RCF?
Yes. We have a cash balance of SEK 8.4. I think external loan's SEK 1.2 out of that. The dividend, the proposal from the board of directors to annual general meeting is to pay a dividend of SEK 9.75 per share. The proposal is also that it will be paid in two installments, one in May and the second half in November. We think it's a good proposal, it's in our plans, and we will keep on with our strategy to invest in those areas. We have a strong financial position, we don't see any big issues with that.
Okay. Have you drawn on the RCF during the period?
From the-
RCF.
RCF?
No. We haven't.
Okay. That's great. Thank you very much.
Thank you. The next question comes from the line of Charlie Muir-Sands from Deutsche Bank, London. Please ask your question.
Hi. I just had two very brief follow-up questions to topics.
Yeah
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. 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. 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 helped you manage cost growth?
No. Nothing one-timers. No.
Okay. Thank you very much.
Just cost consciousness.
Thank you. The next question comes from the line of Janice Kew from Bloomberg News, Johannesburg. Please ask your question.
Hi. Good morning.
Good morning.
I wanted to ask a little bit more about ARKET. In the statement, it says that it'll be supported by external brands, and I was just wondering if you could comment on that. I also wanted to make sure I'd understood, what I'd read into this in the statement was that ARKET's 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. I have some examples for sneakers from Veja, men's shoes from Kickers and R.M. Williams, and peppermill from Peugeot. Your second question, I didn't quite hear you. Your line was bad, so could you repeat, please?
Sure. I just wanted to make sure I'd understood correctly in terms of the cities that will be targeted for store openings.
Cities, yeah.
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. Would we expect more of the same in terms of future openings, that the focus area is Central Southern Europe?
Yes. Probably, but we will come back to that later.
Also we will open up 18 online markets also in connection with the launch.
In terms of ARKET, what is really different about this brand? How are you differentiating it?
Yes, it's the way they put it. It's the modern-day market, which offers a broad range of essentials for men, and this is important. If you compare to COS, for example, men is a smaller part. This is very much for men, women, and children, and a smaller assortment for the home. It's simple, timeless, and functional design with high quality. I think a lot of classical garments such as peacoat, trench coat, et cetera, and striped sweater. Everything, you will find a broad sort from very relaxed to well-dressed. There will also be a cafe, as we mentioned, which is very interesting with a connection to the Nordic kitchen.
Thank you. Is there time for me to just ask one follow-up question on-
Yes
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, where you intend to do rebuilds or increase store space.
I think this is something we do in every market. We always do it. It's not something dramatic. Of course, it goes without saying that in these times, with this fast shift we have from the digitalization, the customer needs and expectations, we need to look over the store part even further. 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 a better location or better mall. 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.
Good morning.
I just had two questions. First of all, on the advanced analytics, I understand the benefits that can give you in terms of demand forecasting. 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? Could you give us an indication of your average lead times on your sourcing? Secondly, just want to understand around the revenue target. You gave us guidance for the full year of a revenue target of 10%-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, and also including supply chain through algorithms, et cetera, 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. There's a lot of interesting things inside going on, which will help to support this demand. When it comes to revenue target, the target remains the same, of course, the 10%-15% growth. Of course, with the four months we've had so far this year, it's going to be more difficult to reach it this year.
We are still aiming for that. As Nils said, it's for sure tougher when the first quarter and even March was much tougher than we expected.
Okay, thanks. Just to 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?
Well, lead times is a very much a misinterpreted word, I would say, because of course we can be very fast in some cases, I mean, talk of a 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. No, we don't give an average, but we can be very quick. I also prefer to talk more about reaction times, and that's even more important now with the shift we see in the digitalization and the online. Our customers expect to get things now in real time. That's why we're very excited that we can now offer next-day delivery, for example, even same-day delivery sometimes. Really, you click now, 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 your question.
Yeah. Thanks very much. Morning, guys.
Morning.
Question on the strategic initiatives of H&M. Clearly, sales have ran a little bit below plan so far this fiscal year for a variety of reasons. The changes you're making to your omni-channel offer and supply chain and data analytics and so on, which of those would you expect to have more impact in later this fiscal year, so Q2 or second half? Should we expect any of those in particular to start impacting the sales line? Will we have to wait, do you think, for next year or even longer?
As I said, things don't change overnight. I would say some of them, we already have implemented, and we see effects from, and some of them are happening here now, and some even further down this year or next year. This is a process going on. As I said, the digitization is changing not just fashion apparel, it's changing the whole society. Of course, we know exactly where we're going, but we're not yet there yet, but we are taking a lot of steps and measures in order to get there.
Okay, thanks. 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? Or is it a combination of both?
Yeah, I'll just repeat what I said before, it's a combination of many things. 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.
Right.
A lot of things we have done in order to adjust and improve, and part of that has come through. Again, still remains a lot of things that we want to do and improve. Again, we shouldn't draw too many conclusions in just a quarter.
Okay, great. Just one final one. On the revolving credit facility that you've signed, I think it's on page eight. I assume that was done on extremely favorable credit terms.
Yeah, that's correct.
Is that correct?
Yeah, that's correct. Without going into details, of course, as we mentioned, we are able to borrow from money market with negative rates. That means actually that we get paid for borrowing money. Of course, with our strong financial position, we also get good terms when it comes to revolving credit facility. We are happy with that.
Sure. Okay. Thanks very much.
The last question comes from the line of Anne Critchlow from SG London. Please ask your question.
Thanks. Hello again. 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. One, two, three, four, five, six, seven, eight, nine, 10, 11, 12, 13, 14 markets at the moment.
Thanks very much. Just one final question. Do you think the core customer at H&M is getting older or has got older over the years? I think that you traditionally targeted 20-somethings, do you 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, too. Young at heart is the word, right? Everyone is welcome. I don't think there's 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&A again, just to follow up. Could you outline if there was any beneficial impact to SG&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&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 that stuff. It's a combination of working with balancing out the hours in stores, looking into a lot of different costs within the organization. As you said, for sure, also good terms when it comes to rents.
Brilliant. Sorry for the boring question. Thank you very much.
No problem. Great question. Thank you. Okay. Thank you.
There are no further questions at this time.
Okay. Thank you for all your questions and for joining us today. Of course, as usual, if you have further questions, I will be available during the day, and we wish you all a good day.