Thank you for standing by, and welcome to the 6 Months Results for 2016. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Wednesday, 22nd June, 2016. I would now like to hand the conference over to your speaker today, Niels Veignet.
Please go ahead, sir.
Thank you, and welcome to this telephone conference on the occasion of AT and M's 6 months report 2016. Our CFO, Jyrki Tarbanon is with me today, and we'll be happy to answer your questions after the presentation. You'll find the presentation slides to this telephone conference on hm.com. Sales including VAT in the 2nd quarter amounted to SEK54 billion and profit before tax to SEK7 1,000,000,000. In local currencies, sales increased by 5% in the 2nd quarter.
The sales increase in March April was significantly below our plan. These 2 months were negatively affected by cold spring weather in many of our markets. In May, sales developed much better with an increase of 9% or 11% with adjusted for calendar effects. Gross profit in the 2nd quarter was $27,000,000,000 corresponding to a gross margin of 57.6% compared to 59.4% last year. Markdowns in relation to sales were 0.9 percentage points higher than Q2 2015.
The increase is explained mainly by the fact that spring garments did not sell as well as planned due to the unfavorable weather in many of our important markets. The combined effect on purchasing costs from the external factors remained negative. This is mainly due to the impact of the stronger U. S. Dollar.
Looking at selling and administrative costs. Cost control in the group remains good. In the Q2, SG and A increased by 6% to SEK 20 1,000,000,000. In local currencies, the increase was 8%. Costs in comparable stores were somewhat lower than in Q2 last year.
The increase in SG and A is mainly related to the expansion and the long term investments within IT and online mainly. Profit after financial items thus amounted to $7,000,000,000 in the quarter. And net profit was $5,400,000,000 compared to $6,500,000,000 and equaling earnings per share of DKK3.24 compared to DKK3.19. Looking at some key figures. Stock in trade on the 31st May amounted to $25,300,000,000 an increase of 29% in SVK.
Increase in the stocking trade is mainly due to the expansion through stores and online and to the strengthening of the U. S. Dollar. The increase is also related to bookkeeping effect of more than SEK1 1,000,000,000 arising from our previously communicated change in the process around invoice management for sourcing. In addition, the increase is explained by the fact that sales in the quarter were below plan.
This has led to higher stock in trade and plant at the end of the second quarter. Cash flow from current operations was DKK 12,600,000,000 down from DKK 13.6 million. Investments in terms of CapEx totaled SEK 5,600,000,000, an increase from SEK 4.7 $1,000,000,000 Investments covered mainly new stores, but also IT and logistics and of course the expansion of online. For 2016, CapEx is expected to be €12,500,000,000 to 13,000,000,000 which is somewhat lower than the previously guidance the previous guidance of SEK 13,500,000,000 to SEK 14,000,000,000. And now some words on our expansion.
The combination of strong brands, an extensive store network and a successful e commerce business puts us in a unique position market position for continued growth. Although e commerce is growing fast, there is still a great potential for the H and M Group to continue to expand through physical stores. So for us, our continued focus is to grow both through physical stores and online, as well as to integrate these 2 channels. We're opening 11 new H and M online markets this year. 9 of them opened in the Q2.
These markets are Ireland, Croatia, Slovenia, Estonia, Latvia, Lithuania, Luxembourg, Japan and Greece, all have got off to a good start. We now offer online shopping in 32 markets. A further 2 markets will go online this autumn. It's Canada and South Korea. And next year, we plan to continue our fast rollout
of
new online markets through the group. Looking at our store network. Today, we have more than 4,000 stores in strong retail locations in a total of 62 markets. We're signing very favorable store leases. And this year, we plan a net addition of approximately 425 stores.
We're also opening 3 new H and M markets this year. Puerto Rico, where we had a successful opening in Saint Joan on the 9th June, and New Zealand and Cyprus, for the first H and M stores will open this autumn. Looking further ahead, in 2017, we plan to open another 4 or 5 new markets, H and M markets, of which Colombia will be 1. Being able to offer customers a selection of brands with different identities is another important part of our long term work to further strengthen our future market position. And our new brands, Kos and Other Stories, Monki, Weekday and Cheap Monday are becoming an increasingly important part of the group.
In 2016, the main focus of expansion will be on KOS. KOS will add 5 new markets during the year. Cost has a very strong momentum, pointing towards a turnover of around SEK 10,000,000,000 already by next year. And other stories, Monkey and Weekday will also expand in new as well as in existing markets. And now before we move on to the Q and A session, just some words on current developments.
During the 1st 3 weeks of June, sales were up 7% in local currencies compared with the corresponding period last year. This should be seen in the light of a strong June last year when sales increased by 14%. And looking at market conditions regarding sourcing, the negative U. S. Dollar effect, which has affected purchasing costs unfavorably for a long time, will have a negative impact also on purchasing through the Q3.
With prevailing FX rates, the dollar effect will be neutral on purchasing costs for the Q4 compared to the corresponding quarter the previous year. It has been a challenging first half year for fashion retail in general and also for us. As always, there are things that we could have done better. We are convinced that we can improve our sales and earnings in the second half of the year, considering the actions we are taking in combination with a gradual easing of the negative U. S.
Dollar effect, mainly in Q4. And we have a strong plan for 2017, so we feel optimistic about the future. And now we're happy to take your questions. And as usual, please remember to only ask one question at a time. Thank you.
Thank
Your first question comes from the line of Cedric Lacazevo. Please ask your question.
Yes, good afternoon. Cedric Lacazevo, Raymond James. I have a question regarding the focus you want to have on integrating stores and online. You say you want to further integrate these channels. So the question is how far do you want to go in the click and collect model?
And what time frame should we eventually expect to see some changes? Thank you.
Yes. This is an ongoing work. And Click and Collect is always asked on these calls. And it's, of course, one of the many features we look into. But I can't give you a time frame when that will be launched.
But at the moment, we are having a test with Click and Connect, and it's not looking into each feature on itself. It's the whole package of different features, which will integrate the physical store and the online channel. So we are looking, as Nils said, in several different features and projects. 1 is Click and Collect. We have rolled out online returns in stores in 10 countries and continuing to roll out.
We have scan and buy in all countries. We are looking into new payment, easier payment alternatives, also looking into different delivery models and how to handle the last mile in a good way. So it's a lot of different and we are working on it. In some parts, we have come quite a bit on our journey and others we are testing. Where these tests are taking place?
No, no. I mean, that's the good thing about having so many markets, so we can different places that we can test. But what's important, I'd like to underline is that already by now we have one of the most visited fashion sites and it's a very large important part of the business already. It's growing fast and it's profitable. But of course, we intend to take it to the next step.
And as we write in the report, the plan is, of course, to integrate the channels even more. So it's very interesting potential going forward.
Thank you. Your next question comes from the line of Charlie Muir Sands from Deutsche Bank. Please ask your question.
Yes, good afternoon.
Good afternoon. I have
a couple of questions, but I will ask one at a time. The first one is on your sales performance in China, where I interpret that you had flat local currency sales despite the fact the store count was up over 30% year over year. Why is that sales performance so bad?
Well, as we talked about before and also connection to Q1, we are not I mean, we're happy with the total situation for us, what we have done in China, and it's a very profitable business. However, the last 2, 3 quarters, we're not happy with the top line. And of course, there are many reasons for that. I mean, first of all, it's in the general market has slowed down. But then again, there are things that we could have done better and that we look into and there's a lot of focus on improving that.
Could you elaborate on what you think you've not done right so far?
No. Of course, this is for competitors. It's not something we keep for ourselves, but there are always things we can improve, absolutely. And again, this is nothing dramatic. I mean, we've had we've been in the business for many, many years, and we've had in every market, we've had situations or times when we had to look into how we can improve things.
And this is in Germany, the U. S, Sweden, the UK, every market. And of
course, when expanding so quickly in China, there is, for sure, internal cannibalism also causing negative like for like figures. But that way, of course, over time, we'll handle with a flexible rent setup, with turnover rents, etcetera.
Thank you. My second question relates to your inventory position. I acknowledge the accounting difference, the currency, but that seems like a even higher than perhaps ideal position than was the case last quarter or the quarter before that. Do you think that markdown will be a big problem again in the Q3?
Yes. When it comes to the inventory levels, it's higher than we planned for sure. And even though we taken into account the accounting effect and our expansion, etcetera, The main reason is that we had had a sales performance, especially in March April, which was quite a lot below our own expectations. So we had a high reduction pace in the second quarter, and we have a higher stock than planned for going into the Q3. So there is, for sure, an obvious risk for higher reductions, but it's not the guidance because it's still over 2 months to go in this Q3.
But for sure, it's higher than we planned.
Right. And I will restrict myself to one final question, which is why have you lowered your CapEx guidance? You've stuck with your store opening guidance.
Is it just a positive effect or
Yes. No, it's a guidance. When we enter the year in connection with the year end, the year end closing, we give a guidance, but we always say it's a moving target. A lot of projects, we haven't started to negotiate. So it's a moving target, and our best forecast for now is that it will be somewhere between SEK 12,500,000,000 and SEK 13,000,000,000 using the exchange rate, which was prevailing at the year end.
And it's still 425 stores net that
we are planning for.
So yes, it's a moving target. Stores net that we are planning for. So yes, it's a moving target, and we have been successful in our negotiations and finding really good store locations to good terms.
Thank you.
Your next question comes from the line of Chiara Battasini. Please ask your question.
Hello, good morning. Thank you for taking my question. Can I also ask on the U? S, which has also slowed further in quarter 2? Could you please provide more color on that, please?
Thank you.
Yes, it's true. We had a pretty strong start at the quarter, but I mean the general fashion apparel market in the U. S. Has been under pressure and also weather conditions, etcetera. And I'm afraid there's not much more I can add.
More than that, we still see interesting potential for us to grow, and we have a strong position, and we get good terms when we negotiate new stores. Also, the online is performing very well in the U. S.
Great. Thank you. And if I may ask another question. I've noticed that you've raised EUR 5,000,000,000 of short term debt, which you haven't done for years years. So what are the reasons for that, please?
Yes, it's correct that we have taken out loans in the quarter, it's approx SEK 5,000,000,000. And it's to improve our liquidity in the Swedish company, HVN GDCR, which is, yes, handling our purchasing and payments for our merchandise or our commercial goods for all our subsidiaries in different sales countries. And the reason why we choose to go externally instead of taking it from our subsidiaries is that it's a very exceptional situation on the lending market, where a company with a strong balance sheet as we have at HFM can actually lend money and get paid for it. So we choose that way of doing it instead of taking away money from our subsidiaries where we still get interest, positive interest in many countries. So that's the simple reason.
Understood. So we might see that done more than going forward? Yes. The
lending market looks like this, somewhere where a strong company with a strong balance sheet can receive negative interest. That means that we will get paid for taking that.
Okay. Thank you very much.
Your next question comes from the line of Jeff Medall from Morgan Stanley. Please ask your question.
Hi, Neil. Actually, I was just about to ask about the debt as well. So I'll pass. Thank you. Okay.
The next question comes from the line of Geoff Lawrie. Please ask your question.
Yes. Hi, team. Just a
quick forward one really. When you look back
at your products for the springsummer season, do you think there are things that you could have done different to the product level? Or put another way, what gives you confidence that weather has been the biggest driver of the sales weakness?
Right. It's a straightforward question. And of course, we always question there are always things we could have done better, of course. But I mean, if you look at the performance in some markets where we had better weather, so to speak, like Northern Europe, Scandinavia, we've had very strong sales. Sweden was up 7%, for example.
And we saw in May when there was very nice weather here, we had close to 20% like for like in some of the markets, very strong. We couldn't have done that with a weak collection. So again, of course, there are things in the collection. We always could have done better. We could have more of certain products, less of others.
But the general conditions and weather, etcetera, has been very negative. That's for sure as well.
Thank you. And a quick second one, if I may. You've helpfully provided some sales indication for Cols, and it's obviously proving very successful. Can you remind us what you've said in the past about margins for the Coles format? I think from memory, you talked about achieving sort of H and M brand type margins.
Is that correct?
Correct. Correct.
Perfect. Thank you.
Your next question comes from the line of Richard Chamberlain from RBC. Please ask your question.
Thanks. Good morning, gents. Just a question on the June sales, please, so far. I just wondered if that was broadly in line with your expectations given the tough comparable effect from last year.
Yes, yes, it was.
Yes, it was broadly in line with our own expectations. As you said, it's we are meeting plus 14% from last year in local currencies. And I think the year before that, it was plus 13%. So we are moving strong grounds.
Okay. Once in July last year was strong, but August was weak. So from August, hopefully, we will see improvements going forward.
Yes, that makes sense. Okay, thanks. And just on June, to follow-up, was there any sort of material calendar impact for the 1st 3 weeks of June. I mean, obviously not from the days, but from the timing of holidays, Corpus Christi and so on, or even the spillover from Memorial. Yes, I just wonder if there were was there a material positive impact?
No, no, there wasn't. That was. As you say, it's 21 days, so it's there is no calorie impact from a certain day. But you're right, there is a Corpus Christi, which we thought was going to be very negative in May and positive in June, but this year proved out not to be having a very material effect. So the answer is no material effect.
Okay. And likewise, for the full month, it will probably be either nothing or very small positive. Okay. Yes. Okay.
Yes, got it. Okay. Thanks.
Your next question comes from the line of Rebecca McClellan from Santander. Please ask your question.
Yes, hi, good afternoon. Nils and Yefkoye. Just a couple of questions. Firstly, what's the level of like for like or local currency sales growth? Is the business budgeting for more generally, I don't know, going into autumn winter 2016?
What's could you say again, please?
What level of like for like or local currency sales growth is the business budgeting for? Sort of like small low single digit like for like positive or
We don't quantify the exact, but of course, I mean, we always strive to grow the like for like absolutely. And going forward, as I said, we are up against very strong June July, but all this is weaker, of course. So there is a I mean, we have a positive like in our plan, absolutely.
Right. And then just on a couple of small ones. I'm assuming it's too far forward to be thinking about the dividend. But is the CapEx is there any sort of and just in CapEx got related to sort of what could be expected at the year end? Or just because the dividend obviously is quite a significant total number and net cash has been under a bit of pressure?
Yes. The change in CapEx guidance has nothing to do with that. It's just like Jyrki said, the initial guidance was in the beginning of the year, and it's always difficult to give an exact number because it's a moving target and we still haven't negotiated a lot of the stores. Now we have much more visibility regarding the CapEx. So that's why the reason why we have lowered it.
Regarding the dividend, I mean, it's far too early and it's, of course, a question for the Board. But we have had no indications for any adjustments on dividend. That's the only thing I can tell you.
Okay. And then finally, just in the Q1 results update, I think it was, you talked about a neutral to slightly positive FX impact on purchasing costs. And now we're just talking about neutral. Is that just simply semantics? Or has I'm assuming nothing has really shifted in that?
Yes, because the currency is the FX has moved slightly. And it's not just the dollar, euro. There's also other currencies, of course, which go the other direction.
Okay. So there is a slight change just
Yes.
Okay. As we said, it was a prevailing FX, right?
Yes. All right. Thank you.
Your next question comes from the line of Anne Critchlow from SG.
Hello, thank you. My question is about the incremental investments. What is your thinking on these from 2017 onwards in terms of the previous investments drop out? Or do we have some incremental investment, maybe not as much as before? So in vague terms, how are you thinking about it, please?
Yes. To start with this year, we've said we guided for around $600,000,000 incremental. These are the long term investments that we take directly on the profit and loss, right? And so far this year, we're up around $200,000,000
The forecast is more pointing up to maybe 500 1,000,000 on a yearly basis for this year. Yes.
And regarding next year, it's far too early to say at this point.
Okay. Thank you. And then same question for CapEx really, thinking about next year onwards. We've seen a lot of increase in CapEx over the last few years. Do you think that sort of rate of increasing continues?
Or do you think it will ease off and be a lower rate of increase?
When it comes to CapEx connected to our expansion, for instance, we are planning still to increase 10% to 15% of stores each year. So the CapEx will probably be higher than in 20 16, but exactly what levels we are talking about. But coming back to the long term investments, we have had high levels during the past 3, 4 years, and we have we are on a high level. So in the future, we see that it will be a more balanced view between the top line performance that we are planning and also the investment levels that we are planning. So in the future, we can already now start to see that it will be much more balanced.
Okay, great. And then just one final question, please. Looking at costs and then other stories, if you strip out space expansion, how does the underlying growth compare in those formats compared to the core H and M concept?
The growth for both costs and stores is very strong. And so in this quarter, they have done very strong growth, both in terms of total sales development, but also in like for like, very strong. And to comment on other stories, as we've said many times, we're very happy with cost and the momentum. And we stated that next year, the turnover will be around SEK 10,000,000,000. But it's interesting that other stores has actually started even better than Kost did at the same time.
Okay. Thanks. And just one quick follow-up on that. You think that costs and Other Stories are tracking a stronger part of the market? Or do you think there's just a difference in are you doing a good job on cost and other stories and maybe have made more mistakes on H and M?
It's a hard question, but
how can
I say? We're very, very happy with Costa and the stores, of course. And CorSo, actually, you're right, they are targeting a slightly different customer target group. And perhaps that's one of the reasons. But I don't know, I guess there are many reasons behind the success.
Okay. Thanks a lot. Your next question comes from the line of Adam Cochrane from UBS. Please ask your question.
Hi, good afternoon. When we
look at the sort of overall picture, you're cutting your CapEx guidance, you're cutting the long term investments. Are we coming to the end of the heavy investment period that we've seen over the last couple of years for H and M?
Well, coming to end, I think that's a question of definition, to be honest. But as I just previously said, you're right. We have had high increases in the investment levels the past 3, 4 years. We can clearly see now that we are getting a more balanced between the top line performance that we are planning and also the investment levels. So in that sense, it will level out and be more balanced in the future.
And also that many of these investments now start to pay off, so to speak, I mean, the expansion of online. Now we've done a lot of investments. Now we can capitalize on that, etcetera. So it's not as intensive when it comes to investments as initially, and it's more in the rollout phase now.
And secondly, when you think about the actions that you're taking to improve the sales performance in the second half and into next year, in Q2, you've clearly been quite aggressive on the same store cost base. What sort of actions have you taken in the cost base? And does this have to reverse out if you were to see some of your positive sales momentum improving into the second half? I suppose, is it a temporary cost saving or more of a permanent production, please?
There are, of course, a lot of actions we are taking in our store operations every week and every month. And of course, when we have a sales performance that follow our plans, of course, we try to adjust the hours in the stores, the staffing in the stores as quickly as possible. In some countries, it's more flexible than in others. So that's for 1. And then we are looking into different we can negotiate different shop cost cleaning, electricity, etcetera, etcetera.
So it's a broad things of actions that we are looking into. And some of them, of course, we will keep with us. And of course, the staffing, if the turnover picks up, of course, we will adjust the staffing hours as well.
Final one. When you have been launching the new website concept into some of the older online markets, Are you still seeing the same pickup that you said that you saw in the U. K. When you sort of rolled it out?
We it's still only the U. K. That we've made this transition. So we still have the other old markets, so I speak, in front of us.
Okay. You haven't done any more in the last 3 months?
No. Okay. Thank you.
Your next question comes from the line of Chris Chabrese from Barclays. Please ask your question.
That's probably me, I guess. Hi, Nels. Hi, Jerky. One question, actually, because most of mine have been answered. If I can come back to that CapEx guidance that you've given, just to add a little bit of color.
You've said that you had more clarity during the year and yet you you now guide towards €1,000,000,000 but that's kind of a 10% almost in the caps, which is a substantial number. And I wonder whether this is better negotiations that you had? Or is it the realization that sales haven't come up They haven't come as you were expecting them, so you had to reduce the investments. Is it a proactive or reactive decision, I'm trying to think?
No. The guidance is still that we will open up 4.25 stores net during the year. So it's more about that it's really a guidance at the beginning of the year. It's a moving target. It's that we can negotiate better.
It can be the store mix. If we don't succeed in the negotiations, for instance, for a flagship store, then of course, that will be quite substantial investment falling off, etcetera, etcetera. So it's also connected to the mix of stores, but it has nothing to do with that we are not performing on top line on these new stores. They are very profitable.
That's helpful. A follow-up on that one, and I'll end with this. Is it fair then to say that all the projects that you wanted to do up until now and into the rest of 2016 are done and you managed to achieve, let's say, a cheaper price than that? Or is there a timing issue here where some of these projects that you were planning to do actually will come in FY 2017 and hence the reduction in your initial guidance as you were progressing into these 1st 6 months, maybe that's just a transfer of that CapEx into FY 2017?
No. It's not that we are moving projects. As I said, we are still planning 425. The guidance when it comes to number of net stores is the same as in the beginning of the year. And it's more that we are negotiating, and it's a moving target.
And we don't know for sure there were some projects probably that we wanted to do, that we didn't find a solution to get an agreement. And then it's popping up even better cases than we were aware of in the beginning of the year. So then we back off from one of those that we already thought to do, instead favoring even better business case. So it's really a moving target. The expansion teams in the countries are working with it every week, and it changes all the time.
And so that's the main reason.
Okay. Thank you very much for that.
Your next question comes from the line of Simon Irwin from Credit Suisse. Please ask your question.
Good afternoon, gentlemen. Good afternoon.
I'll take the questions.
I'll do them one at a time. Just going back to the online platform, can you explain the business case for using the different platforms where, in particular, I don't really logic of opening for online in certain very small markets, while your core markets, such as the U. S. And particularly, Continental Europe, are still working on an older platform, which clearly isn't as strong as the capabilities you put elsewhere. Is this because when you launch, there will be better capabilities in these markets?
Or is it simply you just don't have the internal capacity to move that fast?
It's combination of various things. And of course, in the best of worlds, of course, we would like to transform every country to the new platform. But we try to do many things at the same time. We try to expand as fast as possible with quality and at the same time develop the customer offering and the integration between channels and lots of features like we like Jyrk mentioned, Click and Collect and Return in Store, etcetera. So it's not that the old platform is bad or anything.
I mean, we've developed that for many years and it can do a lot of different services in a very good way on the old platform. It's like, I think I explained to some of you guys before, if you had a take the Volvo V70, it's been in operation for 20 years. Now they've stopped the production. But I guess the last cars they built were the best ones because they fine tuned it. But still they stop it and they introduce a new Volvo V90, which probably the first ones will be not as good as the old V70, but still it's a new platform which will take them to the next generation, so to speak.
And the same thing here, there are things with a new platform that are not as good as the old yet, but they will be developed over time. So we are running now 2 parallel systems and of course that's not optimal. But to just to make a transition on an existing market is very complex and it's a lot of people involved and customers etcetera. So you have to be very careful when you do that kind of transition. But of course, it's in our own interest to do the transition as quickly as possible, but also as good as possible.
But for sure, we are really yes, coming back to your question, of course, we are looking to each we have different scenarios, expanding with new markets with a new platform, transition in existing markets from the old platform. So of course, we are looking into the different business cases, and it's not only to switch the platform. It's it can be connected to should we open up the neighboring country as well from the same logistical side. So it's really a big scheme that we are looking into and try to make what's best for our business, both in the short term but also in the long run. So we are looking very thoroughly and scrutinizing the business cases.
So and more and more countries will be in the transition projects to come.
Sure. But the new platform you talk about isn't really very new, is it? Because you first introduced that just after U. S. Launch, so it's 3 years old now.
And so I'm wondering what additional capabilities you're expecting to bolt onto that before you roll it out into your main markets, because there can't be a business case for saying it's more important to do Cyprus than Germany.
No, of course, if you just compare transition Germany to expand in Cyprus, then I can agree that it's a clear business case. But as I mentioned, there are many other things that we also have to take care of when we are transitioning. For instance, Germany, one of our biggest markets when it comes to stores and online, then it's, of course, connected to logistical side, how should we act there with the VMS systems, etcetera, and where should we have the location for the distribution centers, etcetera. So it's not just switching on to a new platform. And of course, we have a lot of releases when it comes to the new platform.
So it's getting on capabilities, for instance, checking out, how to check out from the store, payment methods, etcetera. So of course, the countries that will get the transition next year or 2018, they will have more capabilities than the existing new platform.
Okay. And just a final technical question on your incremental investment, which you're now saying will be €500,000,000 this year versus €600,000,000 is that still broadly split fifty-fifty between OpEx and gross margin?
Yes, it is.
Okay. And it will presumably be slightly more heavily biased to the second half of the year, will it?
Will it? Yes, we aim for $500,000,000 yes.
Okay. That's very clear. Thank you very much, gentlemen. Welcome.
Thank Your next question comes from the line of Andrea Falstad from Bloomberg. Please ask your question.
Hello.
There's been a lot of chat about the clothing market just really slowing and there being this sort of apparel Armageddon on both sides of the Atlantic. Where do you see the clothing market at the moment, please?
It's very difficult to say in a simple way. But I mean, we confirm that it has been very challenging in many markets. But it's exactly what it is, if it's macro, it's weather, if it's customer sentiment or e commerce, it's very hard to say, sorry. But we focus on what we can influence and there are certainly things
Do you think there's evidence that women
are buying fewer clothes? That's what Marks and Spencer said. They thought women were just buying less clothes. Have you seen any evidence of that?
No, not really. I think there's still a big need for many people the globe to buy fashion and that's what we aim to provide them with the fashionable clothes, high quality in a sustainable way and there is a big demand for that. And no doubt about it. But what else can we add anything to that? No, it's very difficult, sorry.
Okay. Thank you.
Any more questions?
Hello?
Are there any more questions? We are talking to the operator because we don't hear anything.
Hello, apologies, technical problems. Yes, we have a
few questions. The next one is from the line of Benjamin Jagrom. Please go ahead. Hi, there. I was just looking at your emerging markets
figures. Could you talk to me
a bit more about your plans for expansion in some of your key emerging markets and how you see yourself in the future sort of balancing the mix between stabilization growth in Nordics and developed markets and expanding in Latin America and Asia and so?
Well, first of all, I think we look at each market per se, so to speak, market by market and they're all different. So it's I think it's too simplified to just talk about emerging markets, but we see a great potential in many markets. We're still very small and very new in many markets across the globe And still, we see a great potential in adding new markets. So for next year, we plan 4 to 5 new markets where Colombia has been announced today. And this year, of course, there's 3 new markets where Frederico is open already, and we will open New Zealand and Cyprus during the fall.
So we grow in every market, actually even in the older markets like Sweden and Scandinavia, even though, of course, not with a great the same pace as in the new markets.
Great. Thank you very much. Your next question comes from the line of Cedric Nusselt from Raymond James. Please ask your question.
Yes, gentlemen, my questions have been answered. Thank you.
Okay. Thank you.
Your next question comes from the line of Stephen Wilmot from Wall Street Journal. Please ask your question.
Hi, there. Yes, I just wanted to ask, what would be the trigger for you reducing your space expansion target from the current range of 10% to 15% to anything lower. Do you have any kind of specific strategy which would sort of catalyze any change in that?
Yes, it's very simple because the target is to grow 10% to 15% new stores per annum with continued high profitability. And of course, if we can't grow with the same quality or profitability, we will slow down. It's very simple.
So you have a kind of return on investment target. And as long as the store openings meet those thresholds, then you would continue to do them?
Yes. That's one way of
putting it, and we see that we can grow with this space for many years.
Okay. Thanks very much.
Your next question comes from the line of Asad Malik from Citigroup. Please ask your question.
Good morning, Niels. And just a quick one for me and sort of following on the comments you're making around China. Just looking at the kind of store closures in the half, it looks like they're about 31. I think last year, you closed about 59. I was just wondering, should we expect a higher rate of store closures going forward, I.
E. What's the gross opening number from where you get that €425,000,000 net? And just following on from that whether going forward, we will start to see a little bit more churn in the estate coming through in China.
Okay. It's very simple because we always look at each store performance and that's one of the reasons why we leased the stores because a couple of years down from further down the road, it could be the customer might have could be another location which is stronger or something where we might find another contract which is better. So then we it's mostly about relocations and we signed better contracts. So you shouldn't be worried if you see closures. It's very natural part of the business.
And this is an ongoing process. And of course, the more stores we have, the greater the number will be. So that's the simple answer on that question. And what was the second question? Say again, please.
I was just wondering if it was actually on whether we should see China churn, yes?
Yes. And I expect that as now China is becoming a we have a big store park in China and growing further. Of course, some of the stores were most likely will be closed and relocated just as we do for the group. And just I want to clarify what Jyrki said before. The leases we do are very, very good and not just in terms of the lease the rent, but also the flexibility and yes, the terms in general.
Okay. But can you give a number on how many stores you expect to close this year?
It's not official, but you're right. I mean the EUR 425 5 is a net number. So I mean, let's say, if we continue with the same pace of closures or relocations as last year, we are talking about close to 500 stores growth, which is important to keep in mind when you look at CapEx, etcetera. It's not the 425,000,000,000 It's actually close to 500 stores we need to invest.
That's great. Thank you very much.
Your next question comes from the line of James Skinner from The Street.
Hi there, Niels.
Hi there, Niels. Hi, Niels. Hi, Niels.
Hi, Niels. It's just most of what I wanted to ask has already been covered, but I have a couple of questions. I was just wondering if you can give any more or any color at all on like for likes. You said at some point that like for likes had been particularly strong in some markets. I think you cited 20% growth.
I'm just wondering if you can say which markets those would be and perhaps which ones give any indication of where this particularly strong growth is coming from and perhaps those areas where growth is lacking?
Yes. Very simple. I mentioned the we were talking about the collections and I was referring to May, when we got some very nice weather in especially the Nordics and some markets there were very strong performance. That's all.
Okay. Okay. And the other question I have is you guys say that new store sales are profitable and that the online business is ticking along okay. But the gross margin still seems to have come down somewhat. Given the pressures on margins and the bottom line as well, at what point does the company begin to rethink its pricing strategy in the core H and M brand?
And at what point would you again perhaps consider a rethink of the store expansion strategy?
When it comes to pricing, we always aim for having the best custom offering in each market, its price, its quality, sustainability, etcetera. So we are always monitoring what's happening on different markets when it comes to pricing. We are doing our own price analysis, looking at competitors, what's happening. So of course, we are adjusting prices every season, both down and up. So we are following what's happening.
And it's maybe it's easy on paper just to get a good and high bought in gross margin, but the reality can be something else. So we will stick to our business idea and really start from our customer offering. And the second question was?
So the it was just an add on to the previous question, again, given the margin and the bottom line issues, is there any particular I mean, do you have I think this is partly covered before, but do you have a particular point in mind where you might begin to reconsider the pace of geographic expansion, the pace of store expansion?
Yes. We touched upon that before and we said that, of course, the growth target is always to grow with continued high profitability and with quality. And of course, if we can't achieve that, we won't grow as fast. But we see potential to grow with this space for many years from now.
Okay. And just one final question. The closing market in general, but particularly the mid market, so call it the mid tier of the pricing strategy, pricing spectrum as it were. Thinking of that and competition, do you guys have are you able to say what your expectations are for pricing in the middle tier, as it were, going forward over the next, say, 12 months or so?
No, that's not nothing we guide for, no. But I mean, we expect it to be very competitive going forward as well.
Okay, okay. Fantastic. Well, that's it for me. Thank you very much.
Okay. Thank you. See you. Bye bye.
There seems to be no further questions. Please continue.
Thank you all very much for participating in this conference call and looking forward to speak to some of you again in connection to the 9 month earnings call in September. Bye bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.