I must advise you that this conference is being recorded today on Wednesday, 28th January, 2015. And I would now like to hand over to your first speaker today, Mr. Neil Singer. Please go ahead, sir.
Thank you very much. Welcome to this telephone conference on the occasion of H and M's full year results 2014. Our CFO, Jyrki Tarbonen is with me today and we'll be happy to answer your questions after the presentation. You'll find the presentation slides to this teleconference on hm.com. Please look at the slide 2014 in brief.
2014 was a very good year for H and M. Well received collections for all group brands and continued global expansion with stores and online increased market share and further strengthened H and M's position. Please turn to the slide sales. H and M's 4th quarter spans from September to November. And looking at market conditions in the 4th quarter, autumn 2014 was characterized by unseasonably warm weather in several markets and available market statistics showed weak development for fashion retail.
In this environment, H and M performed well. Sales including VAT increased by 11% in local currencies and 17% in SEK Swedish krona amounting to SEK 49,700,000,000 For the full year, sales including VAT increased 18% in SEK and 14% in local currencies. Sales developed well in all markets and for all group brands. Sales including VAT amounted to almost SEK 177,000,000,000. Looking at the development in some of H and M's largest markets, please turn to the slide sales per market.
Germany is still the group's largest market by far with 4 40 stores and approximately €35,000,000,000 SEK in sales last year, H and M is still growing in Germany. And the U. S. Is H and M's 2nd largest market. With a strong contribution from online and a total of 51 new stores net, sales increased by 22% in local currency and 26% in SEK.
In the U. K, which is the 3rd largest market of the group, sales were also strong. And in neighboring Ireland, very strong. China was H and M's largest expansion market again last year, with a net addition of 86 new stores and the successful launch of shop online. At the end of the year, China had 291 stores.
H and M's first store in China opened in 2007 And today with sales of more than SEK 9,000,000,000 in 2014, China is H and M's 5th largest market having surpassed Sweden in just a few years. Healthswear development for H and M was also strong in Southern Europe with a doubling of sales in Turkey, an increase of 24% in Italy and a growth of 29% in Greece. So with a very good performance last year, H and M continued to gain market share and strengthened its market position further. And now to look at results, please turn to the next slide. Gross profit in the 4th quarter increased by 16% corresponding to a gross margin of 60.4% compared to 60.8% a year earlier.
Looking at the market situation for some external factors such as raw material prices, cost inflation, supplier capacity, purchasing currencies and transportation costs. Combined, the market situation for these factors was slightly negative compared to the corresponding purchasing period the year before, mainly as a result of the increased cost inflation. Markdowns in relation to sales were marginally better than in Q4 2013. The positive effect year on year was approximately 20 basis points. For the full year, gross profit increased 17% to €89,000,000,000 corresponding to a gross margin of 58.8 percent compared to 59.1% in 2013.
Most of the difference is explained by H and M's continued long term investments in IT and online, the broadening of the product range and the new fashion brand and other stores. Please turn to the slide SG and A. Cost control in the year remained good. In the Q4, before the allocation to H and M's incentive program HIP, SG and A increased by 13% in local currencies. The increase is mainly related to the expansion and to continued long term investments.
And looking at costs in comparable stores, costs were slightly higher in Q4 than in the same quarter a year before. SG and A for the full year of 2014 increased by 18% in SEK and 13% in local currencies before. To look at profits, please turn to the next slide. Profit after financial license increased by 7% to $7,800,000,000 in the 4th quarter. Before the allocation to HIP, profit was €8,100,000,000 an increase of 11%.
For the full year, profit after financial items increased by 15% to €25,900,000,000 To look at the net profit, please turn to the next slide. Net profit increased 12% to 6 point 2 billion in the 4th quarter equaling earnings per share of DKK 3.76 up from DKK 3.35. For the full year, after a tax rate of 22.9 percent, net profit increased to SEK 20,000,000,000. As a result of the good profit development, SEK 303,000,000 have been allocated to HIP incentive program. Earnings per share rose to DKK 12.07 from DKK10.33 an increase of 17%.
And now for some other key figures, please turn to the slide key data. Stock in trade as of 30 November amounted to EUR 19,400,000,000 an increase of 16% in SEK and 14% in local currencies. The increase is mainly explained by the expansion in stores and online. As a share of sales, stock in trade was 12.8% compared to 13% the previous year. The level and composition of the stocking trade is considered good, which can be seen in the good sales development in the start of the New Year.
Cash flow from current operations was DKK 24,200,000,000 and investments in terms of CapEx totaled €9,400,000,000 an increase from €8,000,000,000 in 20.13. The increase is explained mainly by the expansion, but also by the long term investments. For 2015, CapEx is expected to reach approximately SEK 11,000,000,000 to SEK 11,500,000,000. Liquid funds amounted to SEK 16,700,000,000 and the Board of Directors will propose to the Annual General Meeting a dividend of SEK 9.75 per share. Return on equity was 41.3%.
And before we move over to talk about expansion, comment on the number of employees. The H and M Group created 16,000 new jobs net in 2014 alone. And today, we are more than 132,000 employees working at H and M worldwide. That equals an average number of full time employees of 93,351. Please turn to the next slide.
H and M has a strong global presence. With various brands and concepts, H and M offers customers a broad and diverse range of inspiring good quality fashion in stores and online and is doing so in a sustainable way. By offering great value for money, H and M is just as appreciated by customers in Zix cities as in small and medium sized towns. As a result, H and M is able to grow deeper into each market, while also welcoming customers in new countries. And now please look at the slide Store Expansion 14 to 2015.
Today, H and M has more than 3,500 stores in 55 countries, all group brands included. In 2014, we opened 3.75 79 new stores net, within our target to grow the number of stores by 10% to 15% per year. 2 new markets were added during the year, Australia and the Philippines. Customer reception has been very good and both markets offer great potential for further expansion. For 2015, the plan is to open approximately 400 new stores net.
New markets this year will be Taiwan, Peru, Macau, South Africa and India. And the largest expansion will take place in existing markets, led again by China and the U. S. Expansion also continues for the newer brands of the group, including Kos and Other Stories, Monkey, Weekday and Cheap Monday. Kos has been very successful since its launch in 2007.
In 2014 alone, 6 new markets and 29 new stores were added, including the first stores in the U. S. And Australia. By the end of the year, KOSST had 114 stores in total. Our newest fashion brand and other stores, which was launched in 2013, also had a very good development.
H and M is reaching a growing number of customers also via shopping online athm.com. Please turn to the next slide. Expansion sorry, expansion was fast in 2014 with successful launches of and M's online store in 4 new large markets: France, Italy, Spain and China. In parallel, we have continued investing in the online store and existing H and M markets in order to further improve the shopping experience for our customers. These initiatives contributed to H and M's good sales development in 2014.
And therefore, we are rolling out Shop Online to 9 more new markets in 2015. It will be Belgium, Bulgaria, the Czech Republic, Hungary, Poland, Portugal, Romania, Slovakia and Switzerland. As part of our long term initiatives, we're also broadening H and M's product range. Please turn to the next slide. H and M Home, H and M Sport and H and M's extended shoe range are all examples of how we are developing our customer offering in stores and online.
In 2015, approximately 100 new H and M home departments will open and around 10 new markets will be added. This year, we're offering customers yet another new concept, H and M Beauty. H and M Beauty will be a new broad concept for makeup, body care and hair care with high quality value for money products in a specially produced design. H and M Beauty will initially be launched in around 900 H and M stores in approximately 40 new markets and online in autumn 2015. And now before we move on to the Q and A session, some words on current trading.
H and M has had a good start to 2014 with strong sales both in December January. In December, sales in local currencies increased 15% compared to the same month in the year before. And for January, sales are estimated to increase by 14% year on year. We see great potential for continued global expansion in existing markets as well as in new countries. And we continue investing to further strengthen HCM's position and secure future growth.
As always, there are external challenges affecting us. The U. S. Dollar has recently strengthened significantly against most currencies, including the euro. Although the strengthening of the dollar will mean gradually higher purchasing costs for sourcing to the coming quarters Q2, Q3 and Q4.
H and M will continue making sure to have the best customer offering in each H and M market in terms of fashion, quality, price and sustainability, which together form the basis of our business concept. And with that, we are now happy to take your questions. And please remember to only ask one question at a time. Thank you.
Thank And your first question comes from the line of Eric Carlson. Please ask your question.
Happy New Year, guys. Your online rollout has really accelerated over the last 12 months or so. And I know you won't quantify this for us, but could you characterize the development of online versus your expectations both in terms of sales and profitability?
We are very happy of course with both profitability and top line development. And that's the reason why we continue to invest so much and continue the rollout. But it's not just the online that I mean, we see that we've been talking about multichannel or senior shopping. And I think that's the interesting thing that it also it's the total offering that improves and we see also very good development in our stores.
Very good. Just a follow-up on that if I may. Going forward aside from the impressive rollout of more geographical markets in terms of online, what are the other main initiatives you're taking for online this year do
you think?
It's a number of new initiatives. First of all, we have gradually broadened the assortment of collections. You can find even more products online. We have improved navigation, so it's easier for the cost even easier and you get a better customer experience. And we have installed features like click and collect not click and collect, so scan and buy we call it.
As you know very often when you come to a store and you find a product you like, it might be sold out in your size or color. And with this feature, you can just scan a similar product and immediately see if it's available online and click it and have it shipped out very interesting. We have better pictures, more pictures. And the search function has been improved even better. So a lot of small details, but all in all add to an even better customer experience.
Thank you very much.
And your next question comes from Cedric LeCavla. Please ask your question.
Yes. Good afternoon to the team.
Good afternoon.
Two questions please. The first one on the different components as gross margin that you see as external factors? Maybe on raw materials, not on U. S. Purchasing, but on raw materials, could we have an idea of the kind of relief you have especially on cotton recently and how you see the year?
Okay. Let us start with the cotton then. It's true that cotton prices spot prices have been decreasing last 6 months or so. But we don't buy cotton as such. We design products and we have them produced.
And it's more about the prices or cost on fabrics. And of course, it's much more than just cotton that goes into fabric. There are chemicals and other materials, etcetera. And all in all the prices of fabrics have not decreased as much as the cotton prices. So it's yes, it's a decrease but not materially.
Okay. Thank you. And a follow-up on your online launches. You launch a lot of new countries every year. Could you tell us for a given country like a big country like the U.
S. Or China, how long do you see this impact when you launch a new Internet site, a new online operations in some country? What's the kind of momentum you have on your sales? And how long does it last? Do you still see in year 2, in year 3 positive impact from the launch 2 years ago or something like that?
How does it ramp up to make it simple? What's the kind of ramp up curve that you see on your online launches from year 1 to year 3?
Right. There is no simple answer because there is a different pattern for every country and it all depends. So but what we can see is that the again, that the channels, they complete each other they complement each other. And we see when we have both online and the store operations that the result is very interesting. 1 +1 equals more than 2, so to speak.
Even in year 2 or 3 it continues?
Yes. Yes. As Neil said earlier, I think to go more and more to the seamless retailing, we can benefit in both channels by using both online and physical stores. I think that's an advantage for a player like H and M who has both physical stores and online. So the aim is of course to increase the total selling in the group.
Sure. But you had a sharp acceleration in like for like over the last, let's say, 12, 18 months. Would you attribute online as a big responsible for this acceleration?
It's not that simple. Again, I think that the most important is that the total offering and the designs and the products. And then of course, it helps with online and all the other things that we work with. Yes.
So we have had a good development both in the physical stores as in the online channels. So it goes for both a strong development.
Okay. Thank you.
We have a question from Francesco Marmo. Please ask your question. Francesco, your line is open. Please ask your question. We'll move on to the next question now, which comes from the line of Simon Irwin.
Please ask your question.
Good afternoon, gentlemen. Good afternoon. Can you just talk a little bit about the change program? You gave us some indication last year about the impact. I think you said 700,000,000 split between gross margin and OpEx.
In terms of the change program for the year ahead, should we expect a similar number, a larger number? Or does some of that start to roll off?
You're referring to those long term investments that we have discussed during 2014 and the increase of those, Aure?
Indeed, yes.
Yes. Okay. Yes. For 20 14, the increase in these long term investments towards compared to 2013 was approx 840,000,000 or 50,000,000 And we will have a higher level during 2015 as well. The best estimate we can give at this time is that the long term investment will increase approx SEK 400,000,000 to SEK 600,000,000 during 2015 compared to 2014.
Okay. That's a net increase on the kind of SEK840,000,000 SEK 850,000,000,000 is it? Okay. Thank you. Could I just ask a supplementary going back to what people are asking on buying and things like that?
Is that I think we can all work out the FX that's going on out there. Could you just talk us through what you're seeing in terms of dollar buying conditions? I mean clearly there are some elements of costs which your manufacturers say in Bangladesh are not seeing increasing in line with the dollar etcetera. Would you expect your local currency buying in most of these markets to be up or down for the year ahead?
I think it's very difficult to tell because again there are so many different components and depending on what kind of product you talk about. But if you we talk about these 5 external factors that includes the cost inflation and that will continue to increase, which is something we are for because this is for sustainability reasons. Of course, we want everyone to be able to live on their salary. But of course, we also see that this leads to positive effects in terms of quality and efficiency, etcetera. So that's a good thing.
Then we talked about fabrics already that are slightly down perhaps. And then we talk about transport costs, which of course should be affected positively by the oil prices, but maybe not as much as you would think because we have also there environmental issues etcetera. So all in all, very challenging course, mainly driven by the strengthening of the U. S. Dollar.
Okay. Thank you very much.
And next we have a question from the line of Richard Chamberlain. Please ask your question.
Thanks. Good afternoon, gents. Good afternoon. Good afternoon. Yes, so I just had a question on the Q4 gross margin, please.
I wondered if there were any year end effects worthy of mention. I mean last year we had some impact I think for flow of goods currency effects and a few other factors. Was there anything going on in Q4 that affected the gross margin this year in terms of year end effects?
Yes. When it comes to year end effect, it's mainly connected to the shrinkage and the valuation of the stock in trade. So looking on those two main components, the effect compared to last year is more or less neutral. So no major effects from the year end.
Okay. Thank you. And just one other one if I may on China. It looks like you are seeing a good strong accelerating trend in total and like for like sales there. I just wondered if you can just touch on why you think sales have accelerated.
Presumably that's partly down to Shop Online, but why the sales have accelerated? And also whether you've increased your outperformance versus the market in China in the last quarter?
Right. To start with, we've been seeing every year now that we are very happy with development in China. And that is the case. And I wouldn't say they have accelerated. They have had a strong positive trend for many years now.
But of course, when you look at sales for stores, you might get a different view. And it is we have a good development and we see still potential to grow many, many stores. And as I said before, it was the largest expansion market in terms of stores in 2014 and it will be also in 2015. And we see that our offering is very well received by the Chinese people. And we of course, it's a very big population.
And as you know, middle class in China is growing very rapidly.
And also the more stores we are opening in different cities, so the brand awareness will be stronger and stronger as well. So more and more people will know and understand the brand around H and M.
Right. Okay. So it's partly a market trend and partly H and M's own performance. It sounds like what's going on in China?
Yes. It's a combination of both. And we have had a strong development in more or less all our markets. It's not only China. It's all the markets in Europe, North America, etcetera.
So I think in the end, it's a lot about the assortment and the customer offering we have. So I think that's one result of all the investments we have done in our customer offering during the past years in hiring the quality, looking into sustainability, increasing organic cotton. So I think it's a result of many things and shows the strength of investing in that in the long term.
Sure.
Okay. Thanks very much.
Your next question comes from the line of Anne Critchlow. Please ask your question.
Thanks. Good afternoon. I've got 3 questions. Hi. I'll start with the easiest one.
Could you just repeat the CapEx guidance please for 2015?
I said around SEK 11,000,000,000 to SEK 11,500,000,000
Thank you. And then secondly, how much of the hip cost fell into operating costs as opposed to cost of goods sold in Q4?
90% of the €303,000,000 so CHF 273,000,000 I think. Yes. In the SG and A CHF 273,000,000.
Thanks. That's very helpful. And then finally, if we're looking at new store productivity rate, should we be using say 75% the 70% to 80% that you used to see? Is that a sensible figure for us to use going forward?
It's a very difficult number to give you guidance on. But it's in that range more or less I would say.
And that's what you saw last year?
More or less.
Okay. Thank you very much.
Your next question comes from the line of Chris Chirillaras. Please ask your question.
Good afternoon, guys. Good afternoon.
Maybe 2 or 3 questions, one at
a time for me. The first one on prices. You mentioned that the FX is adverse and we can see that. Would you use prices as a means to offset the pressure in your sourcing costs? Would you be willing to increase prices?
I would say we continuously monitor will continuously monitor. We continuously monitor. Sometimes we adjust up or sometimes down, but we always want to have the best offering in each market. And there is nothing different this time.
Okay. The second one on the long term investments. So you went from incremental investments of EUR 850 to incremental investments now in this year of €400,000,000 to €600,000,000 So there is a small deceleration there. Could you highlight or could you provide some color on what has dropped from these investments? Or in other words, what kind of investments have finished now and you no longer need to repeat?
And as a follow-up, where do you allocate then this extra SEK 400,000,000 to SEK 600,000,000?
Yes. It's a mixed. They have gone down more or less on all these long term investments. Maybe not on the online. That's where we will continue as we state that we will roll out 9 new online markets.
But otherwise, we have taken a lot of these investments during 2014. But still, it's on a high level. But exactly, it's connected to IT projects that we are rolling out. For some of them, we have more or less invested on that level where we want to be. But as Nils said, there are still a lot of good business cases to invest in the future.
So this is the best estimate we have for this year. And we have a nice pipeline of really strong business cases also. So let's see what's happening. Hopefully, we will continue to have these long term investor for many, many years to come.
That is very clear actually. Thank you for that. And last one for me. Do you have a long term a very long term number of stores that you plan to open in China particularly? I mean how many stores do you think that you could how many H and
M stores do you think that you could have in China?
And how many cost stores do you think that you could have eventually in China?
Of course, we have an idea, but we are very pragmatic and we take it step by step.
And it's so difficult to say because then you're just looking into the situation at this moment. Nobody knows what's happening within 5, 10 years. So often if you look back 10, 15 years for a country, then initially we might be thinking that we will open only 20 stores. Today we might have 60 stores. So it's so difficult to forecast or predict what will happen within 10, 15 years.
So but a big potential of course in China as we see it now.
Fair enough. Do you still keep your guidance of 10% to 15% store growth for the foreseeable future?
Yes. Yes. Cool. Thank you. Your next question comes from the line of Richard Jaff.
Please ask your question.
Thanks very much. And a follow on to the online businesses as you roll it out. Will you be implementing it as a full assortment online immediately that the full store assortments will be represented online as you move into these countries? And then a follow on, as you develop the countries to say the online business in the U. S, have you been able to expand the assortments to include some of these new categories to be broader in their offerings than the actual stores?
Yes and yes.
Thank you very much.
As I said before, we are continuously investing and we are one of the things that we have been broadening the offer as such online, but also adding the new concept that we have for shoes and also beauty will be available online etcetera and home H&M Home as well. So the also in the U. S. The customers are now able to find more products than they were a year ago.
Yes. And in the long run, the assortment within the online channel can be even over 100% of the assortment in the store. So
Makes online very important.
Thank you. Yes. Your next question comes from the line of Simon Boler. Please ask your question.
Hi, Jen. So first of all, I wanted to just double clarify on the long term investments. You talked about the 400 to 600 in 2015. Is that an absolute number or is that the year on year increase versus last year I. E.
Are we kind of €1,200,000,000 to €1,400,000,000
in 2013?
It's the year on year increase.
Okay. So we're EUR 1,250,000,000 to EUR 1,450,000,000 ahead of where we were 2 years ago. So we should add those numbers together. Yes? Excellent.
Thank you. And then secondly, I just wanted to check you made a reference towards kind of seamless retailing when you're talking around online versus stores. Can you just talk us remind us how the logistics of your online and your store operations work in terms of warehousing? Whether you've got any plans to bring those all together under one roof? Or how that part of your business is developing?
Yes. We have a very scalable logistics setup with a lot of hubs spread out across the globe. Sometimes they are connected with the stores, retail operations and sometimes they are not. So this is a case by case. But when you talk about the micro logistics, they differ quite a lot.
But of course, we use a lot of the common things that we can use for both channels. And of course, when we talk about seamless shopping and multi channels, it's about integrating the channels in a good and efficient way. And we are on a good way to do that.
Right. Okay. And then very finally, just I was wondering if you might be able to give us any guidance on the depreciation number for the year ahead. Obviously, that's starting to ramp up after what we've seen happen to CapEx. I don't know if you might be able to help us out there at
all.
Could you please clarify the question?
If you might be able to just give us some guidance on depreciation for the year. It has obviously a number of moving parts and CapEx has accelerating in recent years?
Can we come back to that question?
Yes. Do you mean on the depreciations on a total or more into those intangible assets and long term investments that we have in the balance sheet or?
No. I was just meaning just as a kind of total absolute figure I. E. Kind of relative to the €5,000,000,000 that you've had in the year just past?
Yes. They will most probably increase a little bit due to those intangible assets that we have in the balance sheet of approx SEK 2,100,000,000. And now more and more than when we take them in use, we start to depreciate on those. And this year 2014, we depreciated, I think it was SEK 40,000,000 and for 2015 it will at least be the double than more or less probably SEK 100,000,000 relating to those intangible assets.
All right. Okay. All right. Thank you very much.
Your next question comes from the line of Dana Telsey. Please ask your question.
Good morning, good afternoon, everyone.
Good afternoon. Good afternoon.
As you expand into other categories like beauty, is there any is it just replacing the existing beauty category? And of the new lifestyle categories that you're adding, are they margining enhancing? How do you think of the positioning overall?
I'll just start with H and M Beauty. We are replacing existing, but also it's a much bigger and broader concept than the existing H and M own beauty concepts as today. And we will launch it in 900 stores in around 40 countries and online during autumn 2015. When it comes to margins, no comment. Of course, initially, it's a lot of investments and that's part of the long term investments.
But in the long term, it shouldn't have any impact on the margins as such, I would say. But of course, we see great potential. That's why we invest so much and we have great beliefs in these concepts, each of them. So that was Beauty. Did you have any more questions?
Sorry.
On the other categories like sports that you've done home, are they expanding into additional stores and online also?
When it comes to sports, we have sports in a lot of stores, but this extended the full collection so to speak we have in a limited number of stores that we've launched in 2014. But the outcome has been very positive. So of course now we plan to roll it out in more countries and online in 2015. And same goes for the extended shoe range, which we launched in the autumn 2014 in just a limited number of stores and limited number of countries. And of course, the outcome of as we see that this is doing very well, we plan to roll it out in additional stores and countries this year as well and of course on loan.
Thank you.
And you have H&M Home, which I think I mentioned. We have today 104 H and M Home Departments. And this year, we plan to roll out another 100 new H and M Home Departments in 10 new markets.
Thank you.
You're welcome.
Your next question comes from the line of Omar Saad. Please ask your question.
Thank you. Good afternoon. Good afternoon.
Good afternoon. Two quick
questions. The dividend, it's the first time you suggesting a dividend raise in several years. Kind of wanted to understand the thought process there. Is it a reflection of your confidence in the business now that the global markets maybe settling down, the global economy settling down? And then I just wanted to ask a quick question about the supply chain for the beauty business.
Do you have those capabilities in house? Or do you need to partner or joint venture with other operators? Thank you.
Okay. First question about the dividend. That's a proposal from the Board of Directors to the Annual General Meeting to be held in the spring this year. The process is, of course, that the Board of Directors, they we will give them a view of how we see 215 when it comes to our operations, the investment levels both in CapEx investing in new stores. So we give them a picture of what we foresee for 2015.
And then the Board of Directors based on that according to our dividend policy will make a proposal. And this year they have been taking the assessment that an increase of 25 or 9.50 to 9.74 is a good level considering our cash position, our investments that we plan for during the year. So we in the management think that's realistic and balanced proposal from the Board of Directors.
And when it comes to
supply chain regarding beauty, it's 100% private label. So that's all in house and we've had it for many years before. So we have long term relationships with very competent suppliers of course, and we've been developing these new lines together with them. But we don't have any on production just like with textile. It's all outsourced to external suppliers.
Thank you. Very helpful. Thank you.
And your next question comes from the line of Simon Irwin. Please ask your question.
Hi. Just a quick follow-up on the online. When are you expecting to change the online platform for your heritage online markets in Europe and content Europe and the U. K? And kind of related to that you talked a lot about a seamless experience.
Will that seamless experience include collective store?
First question is of course in our plan. We have a plan to migrate the existing countries to the new platform. However, we haven't announced it yet and it's a lot of careful planning because honestly it's more challenging to migrate an existing country than to open a new one to be honest. And second question was Click and Collect. Click and Collect.
Yes. Yes. Of course, it's something we're looking into among many other features as I mentioned before. But there's no plan yet when to launch it or if we should launch it.
Okay. So the platform upgrade isn't necessarily in that cost guidance?
It's part of the IT investments absolutely and costs we make, yes.
Okay. Thank you very much.
You're welcome.
Your next question comes from the line of Paul Stegers. Please ask your question.
Yeah. Hello, gentlemen. How are you? Hi. Good.
Hi. Thank you. Good. Quick question. Just pushing you a little bit on the gross margin, if possible, which I know Niels you're not going to answer, but maybe would it be prudent to assume that given the move in the dollar and your caution on the COGS that you from that area alone, you should see a gross margin deterioration, which will be higher to what you saw last year?
And are there, therefore, some other offsetting factors? You've talked about markdowns in the Q4 last year that could clearly offset that, I. E, should we be a little bit more cautious this year on gross margins versus to what we saw last year? Or sort of is it a similar trend? What's your all else being equal?
What's your view on that?
Since you know my answer, I will let Jyrki try to answer it.
Yes. And unfortunately, I have the same answer as Niels when it comes to forecasting the gross margin and giving that out. I think as we have told you many times, we see that as a very important tool in the tough competition to not reveal exactly or even hint how we are going to work with our customer offering. So sorry.
Okay. Let me follow-up with one other one then on your operating expenditure. Obviously, this is the 2nd year of sort of big incremental investments, which you've talked about. Are there any other lines of the OpEx that you're seeing sort of potential positive leverage such as rental costs, goods and not for resale? I'm just trying to get a sense of this.
Is this just an ongoing sort of investment phase that will continue for the next 5 years. The gross margin will do what it is but what it does. But should we at what stage should we expect like for like OpEx costs to actually give you some leverage if at all and assuming like for like growth remains decent?
Yes. When it comes to OpEx and we have a very good cost control. And those investments that is partly going into SG and A, of course, they will generate revenues in the future. And comparable stores. We see a leverage especially when we have a good like for like development.
As we have said, we have been working very good with the like for like development in the OpEx. But for sure, in the long term, there is an underlying cost inflation in the SG and A and the operating expenses. So we need for sure a good like for like development. But of course, we are looking into finding always a new way of working, trying to find more efficiency in the store operation and all parts of our business. But we are in an intense investment period at the moment and it will continue during 2015 and most probably also in 2016.
But as we said, it's
fantastic business cases and we are
building up much, much even I think we have a good control over the profitability and costs.
Okay. So it's probably just to finish up. Thank you for that answer. It's probably fair to say that given your EBIT margin has gone down by about 500 basis points actually slightly more nearly 600 basis points over the last 4 or 5 years. We shouldn't expect too much positive news flow on that front in the next year or 2.
The top line should remain good. And then hopefully as this big incremental investment phase runs off at the end of 2016 hopefully maybe then assuming sales continue we see some positive operating margin leverage?
Well, I think we have a lot of positive news looking at the profit development on the bottom line. We increased the profit quite much in money and percentage. So I foresee a good development for the future as well.
Okay. Thank you, guys.
And your next question comes from the line of Luke Tomlinson. Please ask your question.
Good afternoon.
Good afternoon.
I just want to get some color on what you saw as your competitive advantage over local players. You're entering into a large number of new markets. I just want to see what you saw as your advantage basically?
Yes. I think it's not there's not one unique thing or one secret. I think if there's any secret, it's the combination of many, many different factors starting, of course, with the business idea and the strong culture of the company.
Okay. And sort of a follow-up question. How do you decide on which what's your thought process on deciding which international markets enter?
It's a very pragmatic approach. We look at the map and we look at the countries and we do our homework to see the potential to learn about the competition and the import regulations and then we have a road map.
Okay. Thank you.
And there are no further questions at this time.
Okay. Very good. So thank you all very much for participating in this conference call and welcome back for the Q1 results on the 24th March. Goodbye.
That does conclude our conference for today. Thank you for participating. You may now