Thank you for standing by, and welcome to the H&M second quarter results for 2015 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you can press star one on your telephone. Please only ask one question at a time. I must advise you this conference is being recorded today. I would now like to hand the conference over to your speaker today, Mr. Nils Vinge, Head of Investor Relations. Please go ahead, sir.
Thank you, and welcome to this telephone conference on the occasion of H&M six-month results 2015. Our CFO, Jyrki Tervonen, is with me today again, and we will be happy to answer your questions after the presentation. You will find the presentation slides to this telephone conference on hm.com. Looking at the first half year in brief, H&M has continued to perform well. With well-received collections for all group brands and successful expansion with stores and online, sales developed strongly and we continued taking market share. Profits also developed well with an increase of 19% in the first half year. This is despite the fact that the increasingly strong U.S. dollar has pushed up purchasing COGS and that we have continued to increase our long-term investments compared to last year. Our long-term investments are necessary in order to build an even stronger H&M.
Among other things, these investments will enable us to be a natural part of our customers' increasingly digital world, where the distinction between shopping online and in physical stores is fading. Our goal is to offer a customer's experience where online and stores are closely interwoven. This will strengthen our customer offering further. Now, to look at sales in the second quarter, please turn to the graph Sales. Sales development in the second quarter remained strong, especially given the more challenging conditions that we faced with strong comparable figures. Sales grew 16% in local currencies in Q2 last year. Unfavorable weather. This spring, the weather was unusually cold in many of our important markets in Europe, a negative calendar effect of approximately two percentage points. In local currencies, sales increased by 10%, translating to SEK sales including VAT amounted to SEK 53.2 billion.
That is an increase of 20% from the second quarter last year. Sales for the first half year reached more than SEK 100 billion, an increase of 12% in local currencies and 22% in SEK. Now to look at results, please turn to the next slide. Gross profit in the second quarter was SEK 27.2 billion. That corresponds to a gross margin of 59.4% compared to 60.8% last year. The combined effect on the purchasing COGS from the external factors was negative. This is mainly due to the strengthening of the U.S. dollar. Markdowns in relation to sales increased slightly compared to the second quarter last year by approximately 30 basis points. For the six-month period, gross profit amounted to SEK 49.5 billion with a gross margin of 57.4%. Please turn to the slide SG&A. Cost control in the group remained good.
In the second quarter, selling and administration COGS increased by 22% in SEK to SEK 18.9 billion. In local currencies, the increase was 12%. The increase in SG&A is mainly related to the expansion and the long-term investment. To look at profits, please turn to the next slide. Profit after financial items increased by 10% to SEK 8.4 billion in the second quarter, and by 18% to SEK 13.3 billion in the six-month period. Profits were impacted by positive currency translation effects from when we translate our subsidiaries results into SEK, but also by the negative transaction effects from the strong U.S. dollar on purchasing COGS. Higher COGS for long-term investments also had a negative effect on profits. Please turn to the next slide. With an estimated tax rate of 23.5%, tax amounted to nearly SEK 2 billion. Net profit increased by 11% to SEK 6.5 billion in the second quarter.
This equals earnings per share of SEK 3.90, up from SEK 3.51 last year. Now for some more key data, please turn to the next slide. Stock in trade on the 31st of May amounted to almost SEK 20 billion, an increase of 32% in SEK. In local currencies, the increase was 27%. Both the composition and the level of the stock in trade are considered good. The reported increase in the stock in trade is explained by the store and online expansion, as well as by the strengthening of the U.S. dollar. As the dollar appreciation has impacted purchasing COGS, the value of the stock in trade has also been affected. As a share of sales, stock in trade was 11.8% compared to 10.8% last year. Cash flow from the current operations was SEK 13.6 billion, up from SEK 11.9 billion.
Investments in terms of CapEx totaled SEK 4.7 billion for the first half year, compared with SEK 3.9 billion last year. Investments covered mainly new stores, but also IT and logistics. For 2015, CapEx is still expected to reach approximately SEK 11 billion-SEK 11.5 billion based on the exchange rates from 30th of November 2014. The financial position of the H&M Group remains strong. Liquid funds increased from SEK 9.6 billion to SEK 10.3 billion, and that is after the dividend payments of SEK 16.1 billion. Return on equity was more or less unchanged at 50.3%. Now for some words on expansion. Please look at slide Store Expansion 2015. H&M store expansion continues. In total, we will open approximately 400 new stores net in 2015. The largest expansion is taking place in existing markets, with China and the U.S. hosting the highest number of new store openings.
In New York, for example, we opened a new flagship store in May on Herald Square in Manhattan. It is the largest H&M store to date, and we are very happy with the customer reception. During the first half year, we added 128 new stores net, and at the end of the period, we had a total of 3,639 stores, all group brands included. We're adding five new H&M markets this year. Taiwan, Peru, and Macau have already opened, and the customer response has been very good in all three markets. Now we're looking forward to opening the first stores in India and South Africa, two interesting and large markets where we see great potential for H&M. The first stores will be in New Delhi and in Cape Town, and they will open towards the end of the year. Expansion continues for all our brands.
Please turn to the next slide. The newer fashion brands of the H&M Group are COS, & Other Stories, Monki, Weekday, and Cheap Monday. Expansion for these brands in 2015 will focus mainly on & Other Stories and COS. Both these brands will open more new stores in 2015 than in 2014. COS will add at least four new markets this year. Bahrain opened with franchise in February. Luxembourg, the Czech Republic, and Canada are planned to open in the autumn. In parallel with our store expansion, we are also adding new H&M online markets. Please turn to the next slide. H&M's online store, hm.com, is opening in nine new markets in 2015. Eight of them opened already this spring: Portugal, Poland, the Czech Republic, Romania, Slovakia, Hungary, Bulgaria, and Belgium. All of them have been very well-received.
With the addition of Switzerland this autumn, there will be 22 H&M online markets. We continue our preparations to roll out the H&M online store to the rest of the group in the years to come. H&M is reaching more and more customers globally. We keep developing our customer offering with new fashion initiatives and new concepts. Please turn to the slide H&M Beauty. H&M Beauty is our latest initiative. This new concept will be rolled out gradually in 900 stores in 40 markets as well as online, starting in July. H&M Beauty will offer a broad range of makeup, body care, and hair care. The products will be of high quality, at very good prices, and in specially designed packaging. This winter, two subsidiary collections will also be added: a premium beauty line for body care and a conscious range of Ecocert-approved sustainable products.
H&M Beauty is one example of all the investments we are making in order to broaden H&M's product range even further. Now, before we move on to the Q&A session, just some words on current developments. June has started well. Sales in the period, the 1st to the 23rd of June, increased by 14% in local currencies compared to the same period last year. Meanwhile, if we look at market conditions regarding sourcing, we see that the market situation regarding the external factors for the purchasing period to the third and fourth quarter of 2015 is very negative. This is again because of the substantial strengthening of the US dollar against most currencies, which has led to substantially higher purchasing COGS compared to the corresponding purchasing periods in the previous year.
We have great faith in our offering. Although the increasingly strong US dollar will result in gradually higher purchasing COGS when sourcing for the coming quarters of 2015, H&M will still make sure to have the best customer offering in each individual market. With that, we are now happy to take your questions. Please remember to only ask one question at a time. Thank you.
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, you can press the hash key. That's star one if you wish to ask a question. Your first question comes from the line of Paul Steegers. Please go ahead.
Hi, everyone. Thank you for your time. Just a quick question on the incremental investment COS in Q2. Can you, as you did in the first quarter, highlight what the amount was and how that was split between cost of goods sold and OpEx, please?
In Q2, the incremental cost was approx SEK 150 million and it's divided more or less 50/50 on cost of goods sold and SG&A.
Thank you very much.
Welcome.
Thank you. Your next question comes from Nicklas Fhärm . Please go ahead.
Thank you, operator. I just have one question. When you say that you expect purchasing COGS and external factors to be very negative in the second half of this year, is that a change compared to exactly what you said at the end of fiscal Q1, please?
There's no change to what we said in connection with the Q1 report.
Thank you very much.
Thank you. Your next question comes from Richard Chamberlain. Please go ahead.
Yeah, thanks a lot. Just got a question, guys, on the capacity situation you're seeing amongst your major suppliers. I know it's one of the external factors on margin. How are you seeing the capacity situation? Are you seeing any excess capacity coming on stream in Asia? Thanks.
It's pretty stable at the moment, nothing dramatic. Yeah, more or less neutral.
Okay, thanks. Just one follow-up. On customer loyalty, can you just give us an update on which markets you've introduced some sort of loyalty scheme in for customers, and what are the plans there and how's that going?
Currently, we have since many years the loyalty scheme in Sweden and Denmark. Last year we introduced a new program in Austria and the Netherlands. Of course, we're very happy with the results, and the plan is to continue to roll out in the rest of the group.
Okay, should we expect a big increase in new markets for that this year, or it's going to be fairly steady?
I think we will come back to when we have more information, of course the plan is to roll it out. Again, it's a balance of quality and speed.
Mm-hmm. Okay. All right. Thanks.
Thank you. Your next question comes from Frédéric Lecasble. Please go ahead.
Yes, good afternoon. Frédéric Lecasble, J.P. Morgan. I have a question on your new segment initiatives. Could you update us on where you stand in Sports and if you are happy about it and where you want to take it? Maybe where do you see these new segments, Sports, Beauty, that you are adding to your offer as a percentage of your global sales within, I don't know, three, five years maybe? Thank you.
Yeah. Again, try to remind you one question at a time. Regarding our new initiatives, you asked about Beauty, extended shoes and Sport. We are happy with all of them. Well, Beauty we are just about to launch, but it looks very promising at least. Regarding Sport and extended shoes, we're in early stage, but so far we're very happy and we continue to roll it out in the group.
Thank you. Your next question comes from Rebecca McClellan. Please go ahead.
Yeah. Hi, good afternoon. Can you give us an update on your views on average selling prices for the autumn, winter and spring, summer 2015 and 2016, and whether you think there's any capacity to adjust them slightly in order to try and just dampen the impact of the average unit cost inflation?
This is, of course, the million-dollar question. As you very much know, for us, it's always about having the best combination of fashion, price, and quality in a sustainable way. We will never be the first ones to raise prices. It will be very interesting to see what's going to happen this autumn.
At present, prices are relatively stable ahead of the season. Price expectations are stable ahead of the season. Is that right?
As you know, we don't comment our pricing strategy apart from what I just said, sorry.
May I just ask, you said that the CapEx guidance is SEK 11 billion-SEK 11.5 billion at current rates at the end of November. What would the guidance be at current rates, please?
The guidance is still that it will land somewhere between SEK 11 billion and SEK 11.5 billion. As I think you mentioned, it's based on the currency rates prevailing at the year-end closing. When translating that to SEK, it can differ at the end of the year. It's the same guidance when it comes to CapEx.
All right. Thank you very much.
Thank you. Your next question comes from Charlie Muir-Sands. Please go ahead.
Good afternoon. I had a number of questions, all related-
Please one at a time.
On the operating costs in the quarter. In the past you've been kind enough to indicate whether comparable store costs rose or fell in the quarter. Just want to gauge that aspect as opposed to the expansion.
The cost in comparable units, they increased during Q2. There was an increase.
Okay. On the calendar impact, which you've said is -2% on the revenues, would that also have been -2% on the COS or?
No, that's the fact. Even when the stores are closed due to a Christian holiday, whatever it is, we still pay rent in most cases, right? That's why it's important to be aware of the calendar impact, because it clearly affects top line, but not so much on the cost side.
Fantastic. Sorry, the third part of that was that the long-term cost investment, you indicated SEK 150 million more in the quarter.
Yes.
Can you confirm that the guidance for the full year of, I think it was SEK 400 million to SEK 600 million, is still as it stands?
Yeah, it stands still.
Great. Thank you.
Thank you. Your next question comes from Anne Critchlow. Please go ahead.
Hello. My question is about the incremental COS, not for this year, but what you're thinking for next year at this point. Do you think there'll be incremental COS in addition to this year's level or the same level or a decrease? Do you have any idea about that yet, please?
It's far too early to start to talk about 2016. As we many times said, we have a lot of good initiatives where we see possibilities. I'm convinced that we will find really good business cases also for 2016. We will come back to that in connection with the full year report.
Okay. Thank you.
Thank you. Your next question comes from Simon Irwin. Please go ahead.
Afternoon, gentlemen. Can you just talk a little bit about your input COS? Obviously, you talked about FX, but if you exclude FX, is there any material increase or decrease in U.S. dollar terms?
No, not really. We talk about these external factors, such as raw material COGS and capacity, salaries, et cetera. The sum of it is, as we said, very negative for the purchasing period now, for the quarters to follow. If you break it down, of course, some, obviously cotton prices have come down a little bit, so that's a positive. Capacity is more or less neutral. Salaries are up, which is good, we think, because this is something we actively drive for sustainability reasons. No dramatic changes, I would say. At the end of the day, I'm talking about market prices now. Then, of course, we could negotiate better or for some reason, have different output in our results for other reasons. As I said, more or less neutral for the world except for US dollar.
Okay. Then just following that on into your inventory, and obviously you said that most of that is down to the US dollar and to the increases in capacity. How should we think about the kind of markdown risk? Do you consider your inventory in reasonably good shape, therefore there is no incremental markdown risk in the second half of the year?
Yes, as we stated at the end of the second quarter, the stock in trade level is good and so is the composition. When it comes to reductions in Q3, it's still over two months to go, so it's far too early to draw any conclusions based only on the stock in trade levels and the composition. We don't know what the selling turnover circumstances will be for the coming months.
Okay. Could I just ask a quick question about the June trading statement?
Sure.
How much of that is down to a calendar effect?
Right. There is a calendar impact. For the full of June, we estimate it to be around 3%. All of that is included in these 14%.
Okay, it's probably a bit lumpier then at the margin then.
Of course, if you take away the net for the calendar impact.
Yeah
the top line is lower, right? Absolutely.
Okay. Fine. Thank you very much.
Thank you. Your next question comes from Christodoulos Chaviaras. Please go ahead.
Good afternoon, guys. Two questions I have, one at a time. The first question is on some consumer behavior in several of your territories. We would have noticed if you do a simplified version of like-for-likes, if you try to do, is that Northern Europe and Central Europe have experienced a decline in the same store sales, while in Southern Europe and Eastern Europe, you've got a very strong like-for-like momentum there, and even the U.S. is doing well, which might come, especially in Europe, as a bit of a surprise given the different states of the economy that the different territories are in. Have you noticed any major change in consumer behavior in the two territories? Would you have any comment of why your sales have such a behavior?
Yeah, it's very simple because the cold spring we talk about is mainly in the central and northern parts of Europe.
In terms of Southern Europe and Eastern Europe, you don't see, well, Southern Europe, you don't see any impact from the tough economic conditions there?
Of course we do, we've had actually a pretty strong development in Southern Europe for more than a year now, even in countries like Greece.
Do you think this is because people are trading down or because your product has improved, or?
I don't think it's as simple as consumers are trading down. I think we've touched upon this many times before. We're very consistent, and we are continuously what we do, and we continue to expand, and the customer appreciate what we do. I think that's as simple as that.
It's specifically looking at the second quarter and maybe at the end part of the second quarter. I think, as we said, we have a good customer offering in all markets. As Nils said, it has been much more unfavorable weather in the northern parts of Europe, Scandinavia, Northern Europe, Central Europe and the southern parts, they have had favorable weather. That's, of course, affecting our turnover.
This is also reflected in the market statistics you're seeing from Germany and Sweden, where Sweden in May was down 9%, I think, and Germany was down 5% or something. We outperformed the markets.
Okay. No, that's fair enough. Good. The second question, if you can give any comment on, if you do have the data on the average basket value differential between a customer at an H&M store, a COS store, and an & Other Stories store. What would be, you think, how much on average would a normal customer spend more, I guess, or not on COS and & Other Stories versus H&M?
Well, as you know, we prefer not to go into details such as customer basket sizes or ASP, et cetera. Of course, both COS & Other Stories, they have more or less the same business idea, which is new fashion quality at best price in a sustainable way. Of course, in a higher price level, price range. That means that price baskets typically should be higher.
Okay. I guess volume should be lower. Would you think that at least the value of the basket will be higher than H&M?
Well, that's just what I said, the value per basket, yes, it should be higher, absolutely.
Okay. Overall. Thank you. Okay, thanks.
Thank you. Your next question comes from Jamie Merriman. Please go ahead.
Thanks very much. You talked about the strong reception from your e-commerce offers as you've launched in the new markets. I'm just wondering, have those launches caused you to reconsider your store expansion plans at all, either reducing the number of stores that you're opening or changing the kind of store, maybe not opening as many small stores and focusing more on flagship stores? Thanks.
It's true that e-commerce is growing, we see potential to continue to grow both in the physical stores and at the same time on e-commerce. We think that can be the situation for many years to come, that we have a lot of expansion still in existing markets and on new markets when it comes to physical stores. We are doing the both and seeing huge potential in both channels.
Okay. No change even to the type of store that you open given e-commerce growth?
No, we are on the opposite. Sometimes we are looking into broadening our existing offers in both channels, both in the e-commerce channel, but also in physical stores. We have added H&M Sport, extended shoes. Now we are launching the beauty line. We'll also expand the existing store space if it's possible.
Okay, thanks.
Thank you. Your next question comes from Dana Telsey. Please go ahead.
Good morning, everyone.
Good morning.
Can you please give a little bit of an update on omnichannel initiatives, where you stand there? Then as you open more H&Ms globally, how do you think of back-filling in with secondary concepts in the different markets? Thank you.
Right. Regarding omnichannel, I think Jyrki touched upon this before. We are investing a lot, and we are adding and improving. At the same time as we are expanding into new markets, we are also improving the customer offering online, customer experience, and we've had, for example, return in stores in many countries now. We have the scan and buy function in many countries. We have a loyalty scheme. We have broadened the assortments, et cetera. So a lot of things going on and a lot of things happening. Regarding your other question, we are launching the other brands, expanding them at a faster speed in percentage than H&M. It's primarily COS and & Other Stories this year, but we're also looking to speed up Monki going forward, and Weekday. As you know, we've launched COS and & Other Stories in the U.S., and we are very happy with that.
Of course, this year, as I mentioned, there will be at least four new markets for COS, and we're very excited about that.
Thank you.
You're welcome.
Thank you. Your next question comes from Adam Cochrane. Please go ahead.
Good afternoon, guys. I was going to try a slightly different concept. Maybe I'll ask two questions, and you can choose which one you answer. Firstly, I noticed that in Russia you increased some of your prices. Was that following on from seeing competitors increase their prices largely due to the FX issues? That's the first one. Then secondly, you just mentioned, following on from that last question about the growth in the other concept. What proportion of sales is coming through the H&M brand now? Of the stores opening this year, how many of them are H&M compared to the other concepts, please?
Right. Starting with Russia, the whole market has increased or adjusted prices to the collapse of the ruble. Of course, we continuously monitor pricing and competitors and sourcing, and it's a natural part. That's nothing new. That happens all the time, not just when currencies move as quickly as they've done at the moment. Nothing new about that. Regarding the other question, there is, I think in the report we state how many stores. We break it down per brand, and that gives you an idea about the expansion. I don't see any dramatic changes going forward.
Okay. At what stage, roughly what % of sales would they contribute to the group now?
The vast majority of the sales are, of course, H&M. We are very happy with the other brands, and we see great potential for each of them.
Okay. Thank you.
Thank you. Our next question is a follow-up from Rebecca McClellan. Please go ahead.
Yeah. Hi, it's Rebecca again. I was just wondering whether you could quantify what you mean by very negative in terms of the impact on the external factors on average unit COGS, in terms of what we might expect for the gross margin in the second half and into 2016.
Let me remind you that we will not give any guidance on gross margin. This is a, as you know, very competitive industry, there is no patents or anything that we can keep. This is something we keep to ourselves. For us, it's always about having the best customer offering, and the gross margin is a result of that.
Okay. Thank you. Secondly, would you expect a higher volume of garments into the summer sales given the sort of levels of inventory at the end of the second quarter?
As we said, the stock in trade level is on a good level at the end of Q2. What the reduction levels will be when ending Q3, we have to come back to because it's still over two months to go. That we will come back to in connection with Q3 report.
You're asking about the quantity, right?
Yeah, the volumes of product going into the sale.
We don't break out
into the summer sale.
Sorry.
All right. Okay. Thank you.
Thank you. Your next question comes from Fraser Ramzan. Please go ahead.
Thanks. Good afternoon. Just wanted to ask about the inventory position. If we take the local currency sales increase to 27%, I think you said that a big piece comes from obviously expansion and also inventory for the new online markets, but also a big piece is clearly the US dollar. Given your speed of inventory turn, isn't it sensible to think that the bit that relates to the US dollar is really what's going to impact your P&L in the next quarter?
Of course, what's in the stock in trade in Q2, of course that will come through the P&L when we are selling the garments. You will see the effect in Q3. That's true.
Right. If I've got 27% local currency inventory increase, and this is my analysis and obviously not your guidance, I understand that.
Yeah.
If, let's say, 15% of that relates to expansion and some of your new online markets, then we would be looking at a 12% cost headwind, in the P&L in the coming quarter. Obviously, all else equal, which it never is. Obviously, prices move and that kind of thing. Is that a fair way to think about the inventory number we're looking at?
As we have many times said, we don't want to elaborate and go into more details when it comes to how the composition and what's exactly the impact on different factors. We are happy with the level and the composition, and there is a huge US dollar impact on the stock in trade. That will, of course, be released through the P&L during the next or the Q3.
Thanks. That's very helpful. Thank you.
Thank you. We have a follow-up question from Charlie Muir-Sands. Please go ahead.
Yeah, thanks. On the news wires this morning, there was a comment that you guys are looking at maybe launching another new banner in 2017. Could you elaborate on what was said this morning? Also on the existing other banners, can you confirm that returns are similar to the rollout of H&M concept?
Again, one question at a time. The first rumor you referred to was a comment from the CEO made this morning regarding our new business department that are looking into new things all the time. Yes, there are some concrete things that we are looking into. I don't think he mentioned 2017, he said going forward.
Okay. Yeah, sorry. The second question was, for the rollout of the other concepts like & Other Stories and COS, can you confirm that the margins, the return on capital profile, or however you appraise the economics of those, is comparable to the rollout of the H&M concept?
Well, we choose not to comment profitability per concept, brand, or market. Of course, initially, when you launch a brand, there's a lot of costs connected to that, and margins are not where we want them to be in the long term. Of course, we see great opportunities and potential for all of the brands. More than that, we don't want to comment the profitability.
Okay, thank you.
Thank you. Your next question comes again from Paul Davis. Please go ahead.
Yeah, guys. Hi. Just back to the gross margin, maybe trying to slice it one other way and get a bit more information. Was there any hedging benefit in the gross margin move in the second quarter? Given you've got reasonably short hedging periods, would it be fair to assume then through Q3 and Q4, you should, at the end of Q4, broadly have annualized the current EUR/USD or dollar SEK rate? Would you be still expecting a further gross margin impact next year, all else being equal?
The first question regarding hedging gains, what could you specify?
Well, I'm just wondering if you still have some hedges which are rolling off in the second quarter that would have benefited at all your inventory or your COGS and protected you in terms of the gross margin. Obviously, as that then rolls out or rolls off, you don't have that positive impact in Q3, Q4. I'm just trying to get a sense of when the fall in the Euro Swedish krona relative to the dollar will fully annualize in your gross margins.
Of course, there's always a mix of the inventories going from Q2 to Q3, et cetera. The negative impact from the US dollar in Q3 and Q4, it's much more negative than for those garments that we bought for Q2. When it comes to Q1 next year, 2016, we haven't started to buy the products at this stage. If the US dollar will be on this level, it most probably will cause a headwind when it comes to negative impact on our purchasing prices also for Q1.
Okay, that's clear. Thank you.
Thank you. Your next question comes from Richard Jaffe. Please go ahead.
Thanks very much. Two questions again, one at a time. Could you talk about the pervasiveness of the loyalty program, how well it's been adopted, how many more markets where it can be rolled out, and perhaps how large it is, either qualitatively or quantitatively? If you could talk briefly about the Southern Hemisphere and some of the unique challenges you've been able to overcome in expanding down there. Thank you.
Okay. First question regarding loyalty scheme. As I said, we started to launch it end of last year, and so far only have it in two markets, this new version of loyalty scheme. We are very happy so far, but I can't give you any more details at this moment going forward. Of course, this is something we believe a lot in, and the plan is to roll it out in the rest of the group. Okay. The next question was regarding Southern Hemisphere. We have now a strong bridge head in the Southern Hemisphere. We have stores, as you know, in South America, Australia, and we're very excited about the launch coming up in South Africa. We have now processed how to handle the reverse seasonality, and obviously, it works well.
Now it's just to scale it up.
Thank you. Your next question comes from Stefan Billing. Please go ahead.
Thank you. On the gross margin, could you please quantify what very negative means versus just negative? Thanks.
A lot of questions regarding gross margin. Again, we won't be able to give you any more flavor than what we have said already. I'm sorry.
All right. Thanks.
Thank you very much. There are no further questions at this time. Please continue.
Okay. If there are no more questions, I'd like to thank you all very much for participating in this conference call. Welcome back for the third quarter results on the 24th of September. Goodbye.
Thank you very much. That does conclude our conference for today. Thank you all for participating, and you are now free to disconnect.