Okay, welcome to this call in conjunction with our Q1 report, which was published today at 8:00 A.M. Central European Time. As previously reported, we will continue with our regular press and telephone conferences for our six months and full year reports. For the first and third quarter, we will arrange this open call for media and financial markets. There will be no presentation apart from this introduction, but you will be able to ask questions and listen in. If you would like to ask a question, please press star one on your telephones. In order to make it clear to the audience, please state your name and company, and please ask only one question at a time. We will be helped by a moderator who will guide us through this call, and I will answer your questions.
Please bear in mind that for regulatory reasons, we are not allowed to give certain information. Please welcome with your questions.
Your first question comes from Anders Hansson from Danske Bank. Please go ahead.
Thank you very much. I have two questions, actually, Nils. First of all, on markdowns in Q2, you say the level and composition is satisfactory on inventories. Can you elaborate a bit on that? Because sales was weak in Q1 and you had a quite negative start to Q2. Why no indications of higher markdowns as we saw after the Q4 results?
Well, it's still too early. We have still two large months left in the quarter. It's too early to give indication. When we gave the indication for Q1, we were past December and most of January. That's the big difference.
If you were to give some sort of a gut feel, because it's still a mixed bag in terms of weak sales in March, but on the other hand, you mentioned that you're overall quite pleased with inventories. Would you say there's a substantial risk for much higher markdowns in Q2, if you can comment on that at all?
No, as I said, it's far too early. We are happy with the collections and the customer offering, and as I said, there are two large months left in the quarter. It's impossible to speculate about markdowns in Q2.
Okay.
On the contrary, we have great beliefs for continued success throughout the year.
Okay, just one short one. You mentioned gradually easing from the US dollar throughout the year. Can you talk a bit about Q2 versus Q1?
Yes, as we mentioned, as you all know, we've started to analyze the strong dollar, and going forward now, the negative impact will ease. Actually, the orders we place today, the dollar is actually slightly weaker than last year. If the current forex exchange, the dollar stays at this level all things equal or Q4, then it's neutral or slightly positive, the dollar effect.
Okay, thank you.
Your next question comes from Niklas Ekman from Carnegie Stockholm. Please go ahead.
Hi. Thank you.
Good morning.
I'm curious about March sales, if you can say anything more there. I know it's just one individual month, but it's a pretty sharp sales miss versus at least our expectations. You mentioned Easter, you mentioned weather. Is there any way you can quantify at least the Easter effect in this month? Because I believe in previous years you've said that Easter doesn't have a tangible impact on an aggregate basis. Any guidance there would be very helpful.
It's always very difficult to look at the Easter effect as such, et cetera, especially in spring. If you look historically at our monthly numbers during the spring, it's very volatile. For example, in 2013 it was -4% on the back of 26%, and in 2011 it was +2% also. That's why we keep saying that you should see the three months, March, April, and May, together aggregated.
If you look on an aggregate basis now, the last 7, 8 months, you've seen quite a severe slowdown in sales compared to the previous 2 years. Is this a sign of a fashion miss, or what is your interpretation of why your sales have slowed by 6, 7 percentage points versus the sales growth you saw a year prior?
I think it's important to look at the total sales development. If you look at that in Q1, it was at least, I think it was 9% increase in local currencies. Last year was 11% in local currencies. We still grow a lot and more than the market, and we continue to take market share. There will always be some periods that are weaker and some that are stronger.
Can you also say something about where you are in your investment phase? You've been talking about an investment phase now for basically 5 years. 2016 is another year where CapEx will be up 15%. Where are you in these investments? Do you see any end? Is there any kind of guidance you can give us there, how far you have come and when we can start to see the positive impact from these investments?
Yes. As I keep saying, I hope that we will continue to invest for many years because there are so many opportunities still out there. I do think, as we state in the report, that we start to see a lot of these benefits. For example, the expansion of online, which is very successful. Now we have, at the end of this year, 34 H&M online markets, for example. We've also launched new brands like & Other Stories in 2013, which is very successful and growing very well. We've launched H&M Sport in 2014. We've added 20 new markets in 5 years, in big markets like India, South Africa, Southern Hemisphere, Australia, and Chile, et cetera. We have a large number of flagship stores around the world. We've extended shoes, beauty last year.
We have delivered a lot of things, and we'll keep continuing delivering new things and new brands and new concepts.
Are you disappointed that these investments have not had a greater impact to your sales, or is this more a sign of a weaker market, or what's your take?
I think definitely you have to look at the market conditions as such, and for most competitors, it's a very tough macro in most of our markets. That's one thing, and again, double-digit growth that we did last year, there's very few other global retailers who do. I think it's thanks to all these investments that we can continue to grow, and we have a lot of growth in front of us. We still grow with 10%-15% new stores per annum in online markets. This year, as you know, we've announced for 425 new stores net, and we think we can grow with this pace for many years.
Okay. Thank you very much.
Thank you.
Your next question comes from Erik Karlsson, from Bodenholm Capital. Please go ahead.
Thanks for taking my question, Nils. I just wanted to clarify the US dollar effect. You say it's better on an orders basis, but could you just help us for Q2 in the P&L. Is it already a tailwind or less of a headwind then, or is it still as bad as Q1?
Sorry, you mean the dollar impact or?
The dollar impact, Q2-
Oh, yeah.
If a Q1.
It's still a headwind, of course. If you look at the-
Of course.
theoretical impact of how the US dollar versus most other currencies was when, during the purchasing period for Q2, it was still negative. As I said, as we start to analyze the strong dollar, the negative impact year-on-year starts to ease, and at the end of the year, it will be neutral or slightly positive.
In Q2, just to clarify, there would be a headwind, the headwind is somewhat smaller than Q1.
That's correct, yes.
Very good. One more question.
I got a comment here from a colleague who listened in who said that perhaps I mixed something up. Because sales in Q1 2015, we increased 15% in local currency, so we had a pretty strong comparable against last year, so to speak. For 2015 as a whole, we increased by 11%. Sorry if I mixed it up.
Very good. Thanks for the help with the dollar comment. Just one more question on current sales. We should look at March and May bunched together. That's clear. In the Q1 report here now, you commented that sales were a bit weaker than you expected. Total sales in constant currency grew 9% this quarter.
That's right.
By inference, the expectation was for a bit more than 9%. Let's call it-
Right
10, 11, 12. Without going into the decimals here.
Exactly.
My question then is, how are expectations set for Q2?
We don't want to go into details, but of course, I can admit that for March is a disappointment, and we had higher beliefs. Again, we shouldn't go into a certain single month. For the full year, we have great beliefs in the customer offering, and we look forward to continue to expand with new stores, new markets, et cetera.
Any reason to believe that the performance in Q2 overall, then March and May bunched together, should be different from Q1? I understand the reality will come out different versus the expectation, but just in terms of how you get the expectation internally.
I don't want to speculate, and we're not going to give any forecast or anything. Of course, it's always better to have a strong start of the quarter than a weak start.
Very good. Have you seen any material change in April versus March?
It's far too early, and last week was against Easter week last year, so it's very difficult to make any comparisons. I can say that also, as in weather-wise, it's been chillier, cooler in most markets. Of course, that's not good for spring garments. We need to have the warm weather to really kick off the selling of the spring garments as always.
Very good. Thank you very much.
Your next question comes from Cédric Le Cassar from Raymond James Paris. Please go ahead.
Yes, good morning, Nils. Actually, most of my questions have already been answered.
Okay.
I might have a follow-up on this March-April phasing. Could you tell us what the Easter impact you estimate was negative for you in March? You mentioned it as facing impact on your weak performance in March. With a pickup expected probably in April, could you tell us how much it impacted March and maybe comment on your main markets? Did you have a weak performance in March across the geographies, or was one or two of the biggest markets responsible for the disappointment? Thank you very much.
Right. Your first question was about the effect of March, and I got that question before, and it's impossible to quantify. It is complex with Easter, but you could say, very simplified, that an early Easter, especially if it's cold, is not good. Historically, for H&M at least, it's been better with a later Easter and combination with warm weather because that really kicks off the sales of the spring collections. Just because it was in March this year doesn't mean it's going to be positive in April, because now we're up against Easter last year, which was in April. It becomes a bit complex. When it comes to geography, I'm not going to comment really the month as such, because again, it's just a month. Of course, we see that in markets where it's been warmer, we've had better sales.
On the important German market, did you see any inflection over the last month? Would you say there's anything happening on this market, or is it as usual?
Germany it's, of course, still our most important market, and it's one of the few markets where we have market statistics. If you look at the textile industry, it's been a very negative trend. I think the last week of March was -16 or something. Of course, since it's an important market for us, of course, we're affected by the market conditions.
Thank you, Nils.
Your next question comes from Charlie Mouazans from Deutsche Bank, London. Please go ahead.
Morning, Nils.
Good morning.
First of all, just wanted to check, when were you purchasing the inventory you're hoping to be selling during Q2?
We've discussed this many times before. It's a big spread. Some products, we purchase very close to the selling. Could be, in extreme case, a couple of weeks before, but some products we purchase could be six months before. Very simplified, the bulk of the purchases are two quarters before the reported quarter.
Okay. When you say that purchases you're making now have a dollar tailwind in, that means that most of Q4 will be actually positive rather than the neutral that you've more indicated in the statement.
Yes, it's not linear. There are, again, I'm very cautious because, as you know, there are so many other factors that influences the gross margin. If you just isolate the dollar impact, it looks better year-on-year. Having said that, doesn't mean that margins all of a sudden should improve because we're still on a high level, so to speak, when it comes to the dollar. It all depends on what we choose to do with our customer offering.
Understood.
Of course, other external factors such as raw material, capacity, transports, cost inflation among the suppliers, et cetera.
That's my follow-up, which is all of those look pretty good because all the emerging markets currencies have devalued against the US dollar by anywhere between 5% and 25%. Factories are reporting greater free capacity. Energy costs, of course, are down. Raw materials costs are down. On an underlying basis, you should be facing, before pricing decisions, quite a nice tailwind by the fourth quarter.
As I said many times before, these are things outside of our control. Sometimes they are negative, and sometimes they're positive. Yes, now we've had a very tough year with a lot of headwinds. Again, this is not H&M-specific. This is for the industry. You're right. Now it looks like it's getting positive. It's interesting. A year ago, when I stood here, we discussed Q1, which was very strong. I think the result was up 30%, 35% or something. We were very clear with saying that the high dollar would impact us going forward. Now we are through the worst of that. Yes, you're right.
Great. Nobody's asked you about operating costs. If I can ask one follow-up, can you say whether costs in comparable stores that you've had open for more than a year, whether they are still down? Is all of the cost growth coming from long-term projects and new stores?
Right. We have a very tight cost control in the company still. If you look in comparable stores, operating costs are more or less flattish. The increase is, as you say, referring to expansion, new stores online, and the long-term investments, additional, Yes.
Great. Thank you very much.
Your next question comes from Simon Irwin from Credit Suisse, London. Please go ahead.
Morning, Nils. Sorry to go on about this gross margin impact, looking at 1Q versus 4Q and 3Q, if we kind of X out what you said about markdown and the comments about the change program, it does look as though the underlying impact from a combination of FX and underlying buying conditions has actually improved a little bit in 1Q versus 3Q and 4Q. Would you agree with that?
Theoretically, the impact was actually slightly more negative for Q1, but that's the theory. The outcome was, yes, you're right, it was likely better due to a lot of things. Some that we managed to do things even better than we planned. Of course, we have other things, external factors that we also benefited from, like we discussed before, transports and raw material prices, et cetera. Of course, also we continuously work with efficiencies and improvements and try to offset without pushing the increased dollar cost to the consumers.
Within your core European markets in particular, what do you think the pricing is doing in spring/summer, or is it very hard to disaggregate that against pretty awful underlying demand trends?
I think pricing is very interesting because we see some competitors who have raised prices to offset the strong dollar, some who haven't changed them, and some who have reduced prices. There's a mix, and we have to relate to all of these, of course. As always, we have to be very cautious and look at each product by product and market by market. For us, as you know, we are very long-term, and for us, it's always about having the best customer offering in each market. I'm not going to give you any forecast about pricing strategy going forward more than we are very long-term.
Just within 1Q, can you just give us any color as to any particular categories or formats that were either particularly good or bad in the quarter?
In Q1?
Yeah.
We don't typically comment on specific categories. Now for competitive reasons, I choose not to comment on that, sorry.
All right. Thank you very much, Nils.
You're welcome.
Your next question comes from Anne Critchlow from SG London. Please go ahead.
Thank you. Hi, Nils, it's Anne from SG.
Good morning.
Hi there. I've got two questions. The first one, sorry if I missed this, in terms of trading days in March, was Easter a negative because some stores in certain countries were closed due to the Easter holidays?
If you just count trading days, yes, there were less trading days. That's my understanding. Again, if you just look at trading days, it could be misleading because in Easter, even though there are less trading days, there are better shopping on the open days because people are on vacations and go shopping in some countries. In some countries, they go traveling, and they don't shop. It's a very mixed bag.
Okay, fair enough. Is it possible to estimate the impact numerically just from the store closures, the days closed?
No, as I said many times before, we don't want to quantify it because it is very complex, and it's also very related to temperatures.
All right, fine. Thank you. Then the second one is more philosophical, looking into the future. If we assume that online continues to grow and maybe you offer free standard delivery and free returns to all customers, complete integration with the stores, a full online offer, would online then be dilutive to the overall group margin?
I don't want to speculate, again, I can confirm that we are very happy with our online development and the business. As we state in the report, it's also very profitable. I'm not going to comment on free returns or anything, again, I'd like to repeat, even though we offer free returns sometimes connected to campaigns or certain thresholds that if you buy this, you get free returns or whatever. That's of course one way of driving sales and also keeping the profitability. Free returns or free shipping, there are no free returns in reality because someone has to pay for it, right?
You pay in terms of a higher price hidden in the price, or the investors or the owners of the company pay. We think it's fair to state the costs, and then sometimes, as I said, we combine it with campaigns or something. We are very happy with our performance in online. I'd like to repeat that.
Okay. Thanks a lot.
Your next question comes from Christodoulos Chaviaras from Barclays London. Please go ahead.
Good morning, Nils.
Good morning.
I have three questions for you, one at a time. Quick, the first one. Why was there a negative store growth in Germany? Is that just a timing issue, or you don't see Germany as a store growth market?
Of course, we have a lot of stores in Germany. We have 447 stores, and there were two closures. This happens all the time. For the group, we closed 13 stores in the quarter. In most cases, it's a relocation. There's a contract that we end, and there is a new store across the street or in a new mall or whatever. As an investor, you shouldn't be sad because typically we don't close the most profitable stores.
Going forward in the longer term, you still see some opportunities to open stores in Germany?
Well, absolutely.
Yeah.
Please remember, Q1 is a small quarter when it comes to openings.
Okay. Second question on the U.S., where you have been doing pretty well for quite some time. It is also documented that non-U.S. retailers tend to do well in the U.S., maybe because of the weakness of the U.S. players there. Can I ask, given that we've gone into a big conversation on weather and weather variations, can I confirm the U.S. strong sales, is that mostly attributed to the weather? Or there is something else going on?
I'm glad you mentioned it, because we're quite happy with our performance in the U.S. I'm sure there are always external factors, but I think the most important thing in that case is that actually we are a very strong team in place. The brand is very strong, and we get very good ratings in customer service in the U.S.
It's not weather related there?
There might be some, as I said, some external factors. I think March was better when it comes to weather than Europe.
Okay. Clear. Third one: I guess, investors or anyone who might be skeptical about the profitability of your online offering, potentially that happens because of your lower price points versus competition. In which case, it would potentially help if you were willing to give what the average basket value is on your online orders globally, don't even specify in different markets. Is it something that you would be willing to give out?
No, because this is very competitive. I tell you again, repeat, that we are very happy we are profitable. There are some things we do obviously better than some analysts think. I've had this comment many times before, that it can't be profitable. I repeat, yes, it is, because we've been in the business for a long time. We've been doing direct sales since the '80s, when we acquired this mail order company called Rowells. We were early with online, in '98. We have gradually developed it, so it's become a very successful and integrated part of the business. Now soon we will have it in 34 markets, and we continue to invest and to expand it into all our markets. It looks very good.
Fair. If I look at H&M in the next five years, could you comment on how do you think COS and & Other Stories, how important would COS and & Other Stories might be in the mix, and whether in the next five years there could be an extra banner coming? I'll finish with that. Sorry, that was the fourth question.
That's fine. I like your question because we're very happy, of course, with the performance of COS and Stories. COS is already now the second largest fashion brand in Sweden by far. With a very strong development and growth. We have 167 stores, something in more than 30 markets. We continue to expand. We also admitted that it's profitable, as profitable as H&M, so it's very good. Stories is also very successful so far and has actually started even better than COS did at the same time. In five years, I expect, I hope, that these brands will be even more important for the group. Followed by other brands. We have the other brands still that we are also growing, like Monki and Cheap Monday and Weekday. As you mentioned, at least one other fascia that we are working on.
They also have great beliefs in and see great potential. Very exciting.
Okay. Thank you.
Thank you.
Just as a brief reminder to participants, it's star and one to ask a question. Your next question comes from Richard Chamberlain from RBC Capital Markets. Please go ahead.
Thanks. Hi, Nils.
Hi there. Hi.
Hi. Couple from me, just one on this calendar impact and another one on online. Obviously seeing some negative calendar impacts in March, I just wanted you to confirm, are you expecting a negative calendar effect for the quarter as a whole? I mean, obviously it looks like it's going to be positive for April, maybe a little bit down in May. Are we expecting a negative for Q2 as a whole in terms of calendar impacts?
Well, typically the calendar impacts are volatile on a monthly basis. For the quarter, typically it evens out. To be honest, I haven't really looked at it for the quarter as such, because there are so many other things that impact the sales, like weather.
Right
shifts of holidays, et cetera.
Okay. Just on online, obviously you've given some nice color in the statement about new markets coming on and so on. Also, those seem to be color range extensions, online-only items, extended sizing, that kind of thing. Why are you introducing online-only items, and does that mean the online range is now as big as the range in some of the larger stores?
Absolutely. We think this is, of course, one of the interesting things with multi-channel and having the different channels they complement each other. On the online offering, you can add more sizes and more products that you can't have in each store for physical reasons. There are physical restraints in each physical store. When you combine the channels in a good way, it's of course, very interesting.
Okay. Pretty soon we'll be in a position where the online range will actually be wider than the biggest store. Is that right or we're not there yet?
I think you could say already that it is wider. Again, there are some products that we have only in store. The target is not to have 100% the same things, because there are reasons for having some products only for online and some actually only for stores.
Okay. All right. Thanks very much.
You're welcome.
Your next question comes from Erik Sandstedt, from Handelsbanken Stockholm. Please go ahead.
Hi there. Thanks. I came on a bit late, so not sure if you have talked about this already. In terms of China, you reversed the slowing sales trend there after four quarters of decelerating sales growth. Could you talk a little bit more about China and your performance there?
Yeah. China and Hong Kong especially, actually just like most of Asia, we think it's quite challenging, to be honest. We see that the market in general is tough. Of course, we are not happy with our performance, especially in Hong Kong and China. We still continue, of course, to expand. We see great potential going forward. The sales performance the last year or so is, of course, disappointing.
What's the main reason behind that? Is that the sort of slowing environment or is it more company specific?
No, I think, the most important reason, of course, is the general macro environment that's tough. Having said that, there are always things that we could do better and we could improve, and there are things that we have improved and without them we wouldn't do as well. Primarily, external reasons.
Okay, thanks. Then do you feel comfortable with the quality of the fashion and the products currently in stores, given the weak March sales?
Absolutely.
Why is that? Is that because it's largely calendar effects and weather effects? How can you reassure us that the quality is still as good as it has been?
Well, this is fashion and there's always changes. The March figures, again, it's very much related to weather and calendar, et cetera. As I said, we see that in markets where we've had more normal weather, it's been better sales. Having said that, again, always in any season, any quarter or any month, there are things that we wish we could have had more of or less of or whatever.
Perfect. Then finally, you comment in the report that you have had satisfactory sales and profit development in your online business. Could you provide any more color on that? Could you say anything about the share of the business now being online, for example?
The only thing I can share is what we said in the report, we are very happy because we've had comments that, as someone said before, that our online business is not profitable, et cetera, that we have invested and we're not getting anything back from the investments. This is a clear statement that we definitely see good things coming out of our investments and we are very happy with the online and the development that we have there.
Is it fair to say that it's somewhere between 5%-10% of your total business in terms of sales?
It doesn't matter because we see the two channels integrated and they combine each other. Online drives traffic to the stores and vice versa. Then you have returns in store, et cetera. You might go to the store, get inspired, you might order online, you might go to the store and return and buy something in the store. What is online and what is offline? It is not a relevant question anymore really, but the relevant thing is that it is important. It is even more important than before. The whole e-commerce business is growing, in general. Of course, we see that happening for H&M as well.
Okay. Thank you.
Thank you.
Your next question comes from Niklas Ferm from SEB Equity Research. Please go ahead.
Welcome, Niklas. You managed to join the call.
No, I've been around. I missed the first four minutes, so sorry if I repeat one question. I'd like to start by asking you a little bit on capital management. You reported now SEK 25 billion of inventories at the end of the quarter, up 24%. You have commented a lot on the U.S. dollar. I appreciate that, Nils. Could you give us any idea of what you think is a fair estimate of the currency impact on that 24% inventory increase year-over-year, please?
It's a lot, as we state. First of all, you have this change of invoicing process that it's just about SEK 1 billion that you have to take into consideration. There is still a material U.S. dollar impact. Apart from that, the level of the inventory is satisfactory, as we state.
Perfect. Could I also ask you, it's not by no means mid-fiscal year yet, but you guided us on between SEK 13.5 billion and SEK 14.5 billion Swedish krona in CapEx for 2016. Is that something you're willing to tighten or comment on at this stage now that perhaps you know a little bit more how this year will roll out?
Yes. We're still early on in the year, and we have the bulk of the expansion in front of us. I think we only opened 10% of the planned store openings this year. I think we stay with that guidance. You're right, it is a moving target, and it can change.
Could I also ask you've been kind enough to provide us with guidance for the extra investment-related costs of SEK 600 million for this year.
Yeah.
If I get it right, you charged about SEK 100 million out of that in fiscal Q1.
Yes.
Is there any way you could provide us a little bit more of a feeling for how the remaining costs will be charged versus Q2 to Q4, please?
Yeah, we stay with the target or guidance of approximately SEK 600 for the year. As we state in the report, it may vary from quarter to quarter. I have no reason to change that guidance at the moment.
Are you saying then that the best estimate for us is to look at how you charged your P&L in 2015 and have a similar sort of trajectory between the quarters for this year as well?
Yeah, because there's no other better way. Yes, I guess the history is the best proxy, yes.
Okay, the final question, if I may. It would be great if you could comment a bit on, from a strategic point of view, obviously Niklas Zennström is on the board, and I am reading very interestingly that you are happy and profitable with your e-commerce plans and performance so far. I was just wondering, to what extent would you actually say that Niklas has been instrumental or active in sort of setting the strategy online, please, from a board of director proposition?
I don't think it's up to me to comment on individuals on the board. Niklas is, of course, a very successful entrepreneur, and I think really he is a good asset to have on the board, absolutely. To comment about the online strategy, as I mentioned before, we're very long-term. We've been in the direct sales business since the '80s, and step by step developed it, and we've been in online business since '98, and gradually developed and improved it and learned a lot. I wouldn't attribute the success to any specific individual. It's more the team effort of H&M and very long-term, and very much connected to the long-term business idea of H&M.
Thank you very much for taking my questions.
You're welcome. Have a good day.
Your next question comes from Anders Hansson from Danske Bank, Stockholm. Please go ahead.
Thanks. I had a follow-up question on pricing.
Yeah.
On the Q4, you commented on average prices in your largest market, saying they were up slightly in most of your core markets. Could you give an update on what you see in average pricing in the biggest markets?
You mean our prices or in the main market?
Not your prices, of course, which you're not going to comment.
As I said, it's a mixed bag. I repeat what I answered before. In some markets, some competitors have raised prices to offset the strong dollar. Some have kept their prices more or less flat-ish, some have reduced their prices.
I think you had the same comment after Q4, you also, at that point, stated that, on average, prices are up in the main geographies.
Okay. I don't have the sort of exact, because it depends on, again, how you measure. I don't expect there is a big difference in Q1 from Q4 because, again, that hasn't changed that much in Q1. This is more quarters, flat-ish or slightly up might be the same answer then, not a big difference.
Okay. Great. Thank you.
Your next question comes from Erik Karlsson from Bodenholm Capital. Please go ahead.
Thanks for taking another question. I wanted to check how you define the online being very profitable. Particularly, can you help us understand how loaded is the cost base when you make that comment? Does that include investment costs, fair share of headquarter costs, et cetera, or is it excluding these? The problem we have as investors is a lot of online businesses tell us they're profitable, but that's stripping out a lot of costs, which sort of defeats the purpose of that comment. How do you define the cost base when you make that comment?
Again, we keep to the answer that it is very profitable, and we're very happy. Of course, you can define each line, et cetera, and decide how should you split cost A, cost B, cost C. I think one of the advantages we have by having a large store base, and a successful and large online business. We're one of the most visited fashion sites in the world. Is that, of course, we can make investments that are truly multi-channel, and we can split and allocate the costs across the group, no matter what channel. I think that's enough of how much I'm going to go into detail, and I just want to underline that it is profitable because we get these comments that it is not profitable and margin diluting, which is not true.
Yeah. It would be very hard to understand if we don't know what the basis is for that. When you say it's as profitable or more, if we don't know what the cost base and definitions are, Do you think the stores are subsidizing the online in any way?
It becomes a hypothetical discussion in a way, because internally, we don't really isolate it like that. We look at it from a customer perspective and from an H&M perspective. Then some things are, of course, more for online and some for the stores. Most of all, it's for H&M and the total customer offering. It doesn't really add any value of defining every cost or cent exactly per channel. I think the most important thing as an investor is to know that the investments we make sense and that they deliver and that we are happy and the customers are happy. We get more and more confirmations from customer service that they're happy and becoming even happier about our offerings, which is also reflected in the sales online.
Could you help us understand, Nils, when you guys in top management meet and so on, do you at all look at the separate profitability of the two channels, or that's just not how you guys think, neither should we?
Well, of course, we follow up. That's one of the advantages about being a large company with around 4,000 stores and 60 plus markets and a lot of concepts and there are KPIs on everything, and we can benchmark. By that way, management by exception, so to speak. If something sticks out, of course, we benchmark and we measure profitability, et cetera, efficiency per channel, per concept, per category, per market, you name it.
Good. Thank you very much, Nils.
Once again, ladies and gentlemen, if you do wish to ask a question on today's call, you will need to press star and one on your telephone keypad. Your next question comes from Jamie Merriman from Bernstein, London. Please go ahead.
Hi. Good morning.
Good morning.
I have two questions also about online. I guess you may have sort of gotten to the first one in your last answer. I think in the past you've said explicitly that your online margin is equivalent to your store margin, and I'm just wondering if that's still a statement that you would reaffirm. The second one is.
Yes.
Oh, okay. The second one is, now that you've rolled out the new platform in the U.K., have you seen any e-commerce growth accelerate since having launched that platform? Thanks.
We are, as I touched on in the last call, we're happy with the transition in the U.K. It's always very challenging to make such a transition, of course, a lot of changes. We are happy, and most customers are happy. Yes, we see, of course, good things coming out of this. I wouldn't say accelerate because we did do well already prior to this. We do even better, and we have been able to improve the customer offering for the U.K. customers in terms of delivery times, et cetera. It's promising for the future and other potential transitions that we have.
Okay. Thank you.
Your next question comes from Geoff Ruddell from Morgan Stanley, London. Please go ahead.
Morning, Nils.
Good morning.
I was just going to ask a question about China. You've mentioned on the call that you haven't been happy with your performance in China over the last year or so. You say that you're still going to open lots of stores there. I was just wondering what drives you to continue with the current store opening rate in a market where presumably you're not getting the returns you were expecting?
Well, I did say there are things we could improve or we're not happy with top line, absolutely. There are other things we're very happy with. For example, the profitability and the potential. The new stores we find have very good terms and good profitability.
The new stores you're opening are still generating positive returns for you?
Absolutely.
That's great. Thank you.
Once again, ladies and gentlemen, if you do wish to ask a question, please press star and one on your telephone keypad now. That's star and one to ask a question. We have no further questions at this time, Nils.
Thank you all for your questions, and I wish you all a good day, and welcome back after our half year report in June. Goodbye.
Ladies and gentlemen, that does conclude today's call. Thank you very much for participating. You may now disconnect. Speaker, please stand by.