Ladies and gentlemen, thank you for standing by and welcome to the Full Year Report 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. I must advise you that this conference is being recorded today, Thursday, 30th January, 2014 at 2 o'clock p. M.
Central European Time. I would now like to hand the conference over to your speaker today, Mr. Niels Winge, Head of Investor Relations. Please go ahead, sir.
Thank you. Welcome everyone to this telephone conference on the occasion of H and M's call year results for 2013. Our CFO, Yurkit Evranan, is with me today as always, and we'll be happy to answer your questions after the presentation. You'll find the presentation slides to this telephone conference on hm.com. Please look at the slide 4th quarter 2013.
H and M showed strong performance in the 4th quarter. Altium collections were well received and sales increased by 13% in local currency. Translated into SEK, sales including VAT amounted to 42,600,000,000 dollars Sales developed particularly well in Asia and in Southern Europe. Online sales were also strong. Last year, H and M soft online expanded to the U.
S, where it has been very well received since the launch on the first of August. The rollout of online to more markets will continue in 2014. Gross profit in the Q4 increased by 11% to $22,200,000,000 The gross margin was 60.8 percent compared to 61.6 percent. The difference in the gross margin is mainly due to currency exchange rate effects in connection with payments for the group's flow of goods and to year end effects. Increased markdowns in relation to sales accounted for approximately 0.2 percentage points of the difference.
External factors such as cotton prices, cost inflation and the U. S. Dollar were more or less neutral for sourcing to Q4 compared to the corresponding year earlier period. Cost control remains tight. SG and A increased by 11%.
The increase was due to the expansion and to our continued long term investments in several areas such as IT and online and our new fashion brand and other stores. Our cost in comparable stores decreased compared to the Q4 in 2012, both in relation to sales and in absolute terms. Operating profit increased to almost $7,300,000,000 with an operating margin of 19.9% more or less unchanged year on year. Profit after financial guidance rose by 11% to $7,300,000,000 a good performance given the large long term investments that we make. Net profit was SEK 5,600,000,000 which equals earnings per share of 3.39 kroner an increase from 3.19 Looking at the full year, please turn to the next slide.
H and M continued growing and taking market share in 2013. Although macroeconomic conditions remain challenging in many markets and marks on activity in the industry was high. Sales increased 9% in local currencies, but due to the strengthening of the Swedish krona, the increase in SEK was 6%. Sales including VAT amounted to SEK 150,000,000,000. Looking at the development into the individual markets, please turn to the slide sales per market.
H and M now has stores in 53 countries. Germany is still the largest market by far with over 400 stores and more than $30,000,000,000 in sales last year. H and M is still growing in Germany. The U. S.
Is H and M's 2nd largest market with a strong contribution from online since August and a total of 32 new stores during the year net. Sales increased by 13% in local currency. In phones, which is the 3rd largest market of the group, sales were strong, especially during the second half of the year. Sales developed well also elsewhere in Southern Europe. As an example, Greece increased sales by 34% in the 4th quarter.
China is H and M's largest expansion market. The number of stores grew by 71 net to 2 0 5 stores by the end of the year with a turnover of DKK 6,700,000,000. And now if we continue with the results for the full year, please return to the slide full year 2013. Gross profit increased to SEK76 billion corresponding to a gross margin of 59.1% compared to 59.5 percent last year. Operating margin was 17 0.2% compared to 18% the year before.
And profit after financial items increased to $22,500,000,000 Profit was negatively affected by the large long term investments, increased markdowns and negative currency translation effects of €600,000,000 compared to the previous year. Net profit for the year increased to CHF 17,200,000,000 corresponding to earnings per share of CHF 10.36, up from DKK10.19. And now looking at some other key figures. Please turn to the slide key data. Stock in trade increased by 10% compared to the same time the previous year.
The increase is mainly explained by the expansion. The composition of the stock in trade as of the 30th November is considered good, even if the level was somewhat higher than planned. This means that markdowns in the Q1 of 2014 could end up at around the same level in relation to sales as in the Q1 2013. Cash flow from current operations was DKK 23,800,000,000 an increase of approximately DKK 5,000,000,000 Investments in terms of CapEx amounted to DKK 8,000,000,000 dollars The increase is mainly due to the expansion, but also 14 is estimated to be between €9,000,000,000 €9,500,000,000 at today's exchange rates. The financial position of the group remains strong.
Liquid funds amounted to $17,200,000,000 And the Board of Directors, we proposed to the Annual General Meeting a dividend of NOK 9.50 per share. Return on equity was 38.5 percent. H and M created more than 12,000 jobs net within the group in 2013. And today, we are more than 116,000 employees. That equals an average number in full time employees of around 81,000.
And now some words on H and M expansion. Please turn to the slide expansion 2014. We continue our strong expansion. Last year, we opened 356 new stores net. At the end of the year, the H and M Group had 3,132 stores in 53 countries.
China and the U. S. Were the largest expansion markets. One of the highlights during the autumn was the opening of a new H and M flagship store at Times Square in New York. More than 2,500 people were lined up outside the store where Lady Gaga kept the rhythm together with the Chairman of H and M.
For the 3rd consecutive year, H and M also added 5 new markets in 2013: Chile, Lithuania, Serbia, Estonia and via franchise Indonesia. And if you please turn to the next slide. Here you can see H and M's rapid global expansion in a longer perspective. Looking at 2014, please turn to the next slide. For 2014, a net addition of 3.70 5 new stores is planned.
It is within our target 10% to 15% new stores per year. Again, China and the U. S. Are expected to be the largest expansion markets. We see great potential for further expansion in other markets too, including Russia, Germany, Italy and Poland.
Several new flagship stores are planned in the absolute best location, in for example, New York, Milano, Shanghai, Beijing and Menbra to mention a few. As we have mentioned before, we are very much looking forward to the opening of HCM's first store in Australia. The store will open in the first half of the year in a fabulous location in the old Melbourne General Post Office building. And the autumn expansion will continue to the Philippines where the first H and M store will open in the SM Mega Mall in Manila. In addition, a couple of other new markets are planned for late 2014 that we will come back to further ahead.
And in 2015, as we've already communicated, the first H and M store will open in South Africa. H and M's global expansion also takes place online. Following the successful start of H and M's online store in the U. S. Last year, the rollout in more markets will continue this year.
Four new online markets are planned to open in 2014. The next market for H&M Online will be France with the launch planned sometime this spring or summer. And 3 more large markets are planned for later 2014 and we look forward to come back with details later this year. And now some words on the newer brands of the group. Please turn to the slide costs.
Costs continued to perform very well in 2013, both in terms of sales and profitability. During the year, Kos opened 21 new stores and added 4 new markets. Kos has developed into an internationally well established fashion brand in just a few years. It was launched in 2007 and has today 85 stores in 20 markets. In 2014, we plan to open more KOL stores than in 2013.
For example, in the U. S, the 1st cost store will open in SoHo or Manhattan together with the launch of online sales for cost in the U. S. Market. Australia, South Korea and Switzerland will also become new cross markets this year.
To have a look at the newest fashion brand of the group, please turn to the next slide and Other Stores. And Other Stores has been very well received since the first store opened in March 2013. The investment in other stores includes not only investments in developing an entirely new fashion brand, it will also involve costs for the continued rollout. In 2014, stores will be will open further stores in both existing and in new markets. Expansion also continues for the other brands of the group like Monkey, Weekday and Cheap Monday as well as H and M Home.
The H and M Home concept opened in around 10 new markets in 2013 and will open in another 15 new markets in 2014 in approximately 70 H and M stores. Expansion also includes the broadening of the product range of the H and M brand. Please turn to the slide H and M Sport. H and M Sports concept has been updated and renewed to include a significantly broader range than before. The new collections include fashionable and functional sportswear for various kinds of sporting activities for women, men and children.
The launch is gradual and usually new collections are available in 18 markets and online. We're also delighted that H&M will dress the Swedish Olympic teams for the upcoming Winter Olympics and Paralympics in Sochi as well as for the Summer Olympics and Paralympics in Rio de Janeiro in 2016. And now before we start the Q and A session, just a few comments to summarize. 2013 ended on a strong note with strong sales and profitability in the 4th quarter. The New Year has also started well.
Sales in December increased by 10% in local currencies corresponding to an increase of more than 12% calendar adjusted. In January, sales are expected to increase by 15%. Although there are still macroeconomic challenges in several of our markets, we are optimistic about 2014, which will be an exciting year with new countries and new opportunities for H and M. We have a strong belief in our offering and are convinced that we will strengthen our market position even further during the year. And with that, we are now happy to take your questions.
And please remember to only ask one question at a time.
Thank you, sir. And your first question comes from Eric Carlson. Please state your company name and go ahead with your question.
Hello, gentlemen. Thanks for the good set of results. I just had a question on China given that it's now your biggest market in terms of space expansion. Could you just tell us a little bit about how the profitability in China compares to other markets?
We are very happy with China and the development, and we look forward to even more new stores in 20 14. Could be as much as 80 or 90 new more stores. But when it comes to profitability, we prefer not to comment profitability per market or concept, sorry.
Thank you.
And your next question comes from Richard Chamberlain. Please announce the company name and go ahead with your question.
Thanks very much. Company names BofA Merrill Lynch. A couple of questions around gross margin, please. Just number 1 would be, I wonder if you could just talk around the promotional activity you did in the quarter, whether that was more in store than online, which markets in particular were very promotional and whether that was sort of driven by, I guess, demand being very back loaded. You had one very strong month November following a softer period.
Did that contribute to it as well? So any comments you can make around promotions, please?
Yes. What I could say is that there was a historically very warm autumn. And if you remember September, October were historically warm. And I think official statistics from the industry showed that it was very weak in most countries. And I think that drove activities in markdown activities, price promotions in many of our markets.
And of course, we had to follow suit in many markets. And also the fact that we had as we commented in Q3, the outgoing inventory level from Q3 was slightly above planned. So that's one of the reasons why our markdowns were slightly higher. But it was only 20 basis points more compared to last year, so no big deal.
Right. Okay. Thanks, Niels. And just one other on the gross margin. I think you're expecting broadly neutral external factors on gross margin for Q1.
I mean, I'm assuming there's a strong euro impact still to come through, but also you've talked about some wage inflation in certain markets. I mean, are they the most material factors to think about for the Q1 and the first half for this year?
Yes, that's correct. For Q1, we've aggregated we estimate that those 4, 5 main components that we used to talk about is more or less neutral and so also for Q2. But now we are buying maybe for the period now that we are buying, it's slightly negative. But Q1 and Q2 more or less neutral effect.
Okay. And it's slightly negative now. Is that because of the wage mainly the wage inflation that you're seeing?
Yes. That's the most important factor. But again, this is not a proxy for number of times. These are input costs and the gross margin. That's dependent on
how we work with our cost, to customer offering with consumer prices taking them down or taking them up or in different markets. So we want to be clear on that. This is just the input cost and the market figures.
Right. Yes. Okay. Clear. Yes.
Okay. Thank you.
And your next question comes from Anne Critchlow. Please go ahead announcing the company name. Hi there. It's SocGen. My question is about the online launch in 4 countries that you're intending for 2014.
I'm just wondering whether you've taken any costs for that already or whether all of the costs are ahead of us still.
No, no, no. This is, of course, something we've been talking about for a long time now, the global rollout that we are preparing for. And of course, we're taking a lot of costs, but we'll continue to save, of course a lot of cost because this is a very ambitious plan that we are doing at the moment.
Okay. So are the costs annualizing? I mean should we expect to further step up for the year ahead?
If we talk of the long term investments, including then the online investments, IT investments, investments in the new brand and other stores and broadening of the assortment, The investment levels for 2014 will be higher than 2013, but no drastic increases. But of course, as Neil said, an ambitious plan to open 4 new online markets. This year 2013, we opened 1 market, U. S. And now we have ahead of us 4 markets.
So of course, the markets. So of course, the initial investments will be higher during 2014. But as I said, no drastic increases.
Thank you. The next question comes from Fraser Ramzan. Please go ahead announcing the company name.
Thanks very much. It's Nomura in London. Just I guess a predictable question around the gross margin. Could you just explain what the year end effects are that you're referring to? And then also I think you mentioned in your sort of earlier description of the changes in the gross margin that the U.
S. Dollar was sort of neutral in the period. So what are the currency exchange effects in relation to the flow of goods? That seems to be something different that you're referring to in the commentary?
Yes. That's correct. It's a different currency effect. But let's start with the year end effect that we have every year. And it's mainly due to that we are recalculating the stock in trade based on a first in, first out.
But the main part is relating to shrinkage. During the year, we are making provisions for shrinkage. And then once a year, we have inventory taking and then we get the final results. So there is, of course, always a difference between the final actual shrinkage and the provisions we have made. And this year, it was normally this provision is higher than the actual shrinkage.
So it's a positive effect, but this year it was less positive than the previous year. So that's the main effect concerning year end effects. And then coming back to the currency exchange rates, it's connected to when we are placing our order placement and the actual hedging, there's a time difference because we are putting orders every day and then we are gathering them and then making the hedging 3 days later. So there is the time difference. And then also the order stock is constantly changing even though we have a finance policy where we aim to hedge 100%, in reality, it will never be 100% because the order stock is a moving part.
We are putting in new orders, canceling orders, amending orders. It will be delays. So the actual hedging can sometimes be 98% or 102%. So there are small differences every month or actually every week when we are doing this. And these effects are mostly insignificant when just looking at those single factor like the currency to be affecting the gross margin by 10 basis points negative this year.
And the same factor was plus 10 basis points last year. So there you have already a negative effect year on year by 20 basis points. And looking into this this as we tried to explain in connection with the Q3 comp call, that differs from quarter to quarter. And looking at the yearly difference, if we are looking at this currency effects, it's more or less plusminus 0 the year on year effect on aggregated yearly level. It's only 8 basis points.
But sometimes small insignificant changes during the quarter, if they go on the opposite directions between the years, they can cause. But it's really that it can vary from quarter to quarter. I just look back and in Q3, we had positive effects, approx 60 to 80 basis points. And when looking at the reported gross margin compared to last year, now we have minus 80 basis points compared to last year. So if we would aggregate Q3 and Q4, that would be more or less neutralized.
So but yes, it's small effects that sometimes can go in different directions.
I see. So without I obviously don't want to put words into your mouth. But if I think about this sort of in totality, you've got the effect of the stock take, which was maybe somewhat negative. You've got the effect of shrink and you've got the effect of this currency volatility. I mean, obviously, as analysts, we all get we all try to analyze these things and predict them ahead of time.
But broadly speaking, what you're saying is these are one offs and quite unpredictable and could indeed move in the other direction next year?
Yes, that's correct. That's correct.
Understood. Thank you very much.
Thank you.
And your next question comes from Charlie Mersens. Please go ahead announcing the company name.
Hi, good morning. Yes, I'm calling from Deutsche Bank in London. I had a question on the operating expense. You commented that in the 4th quarter like for like store costs were down again, which was very good performance clearly given the positive like for like sales.
Can you
give us some color around what's driving that efficiency and whether we can expect that to continue as we go into next year? And also, returning to the question on long term investments, when you say that it should grow year on year, but not by a huge amount, should we be expecting it to be growing faster than total sales or not on the non like cost? Thanks.
First of all, the question about efficiency 1st of all, the question about efficiency in the stores and in like to like
stores, there are, of course, different parts.
But the main part is relating to how good we are in our sales planning to estimate the coming weeks sales planning to be able to stop the stores in a correct way. So there, of course, we are working with different tools to get more accurate in hotel planning to get the staff hours in place when we need them. So that's the main part in the efficiency side in like for like stores. And then the long term investments and the OpEx through year on year, of course, the main factor is our expansion, which is driving the year on year change. But also these long term investments will affect it.
But that will also vary from month to month and quarter to quarter. But as I said, there will be no drastic, drastic increase is. But some quarters, it might be looking a little bit different than the previous one, but no exact guidance of what the percentage year on year change would be. But we are comfortable that we are making those long term investments that will be able us to strengthen our group. And also, we are comfortable with still working really good with cost efficiency.
Great. Thank you. And on the expansion side, the capital guidance, CapEx guidance for the year ahead is perhaps a little ahead of the percentage growth in store numbers. Is that because it's more into other areas? Are the stores bigger or are the stores more expensive?
That's correct. The increase in CapEx is estimated. It's a higher percentage increase than the number of stores. But one have to remember, when we are giving this estimation in the beginning of the year, we have to remember that a lot of the contracts or even we haven't decided which store stores to open and a lot of contracts are not negotiated. But this CapEx increase is mainly due to that we will open more flagship stores and that's really a fantastic thing for which proves the strength of our brand.
We will open a couple of flagship stores in New York, Manhattan, one in Milano, in Shanghai, East Mangan Road, a lot of the new really big fantastic locations with good long term contracts. So that's the explanation. And then also we will have more rebuilds during 2014 compared to 2013. That's the main reason behind the increase in CapEx. So you said more refits?
Yes. Yes, more refits. But looking at normal HSN store, there our investments are more or less on the same level. So it's more refits and more flagship.
Very clear. Thank you. Thanks.
And the next question comes from Simon Irwin. Please go ahead announcing the company name.
Afternoon. It's Simon Irwin at Credit Suisse. Could I just ask you going back to what you were saying about input costs in the year ahead being broadly flat, given that the FX movements that we know of through certainly the next 2 quarters if not 3. Does that imply that there's going to be an implied investment in kind of like for like costs into many markets are actually going up. And I'm not certain that kind of like for like costs into many markets are actually going up.
No. Again, this is not a guidance regarding gross margin. This is what we try to estimate the market conditions. And of course, FX is one important factor, but there are other parts as well. So this is just I mean more or less as we this is not scientifically.
And I think the what Jyrki said about cost inflation, it's the biggest driver that it's I mean, we've seen increases in EMEA, double digit, which we think is good because it's from a sustainable perspective. But you can't rule them out, so to speak. So there is a going forward later in the year, there is a pressure upwards and it's already started somewhat.
Can I ask you just a follow-up in terms of you were talking about doing more refits or rebuilds in the year ahead? And obviously, you're continuing to broaden the range. Can you just give us an idea of ultimately what percentage of stores the new sportswear will be present in? And generally what your average store size will be doing in the medium term? I mean, are you going to have to increase it to take all this broader range in?
That's correct. If you start with the sports collection, which we just launched and have a very good reception so far, it's a gradual launch. We start in 18 countries in selected stores with a full range. And then we have a limited range in several stores and a large number of stores. And of course, again, we will try this out and test and gradually roll it out as we learn and get customer reactions.
So I can't give you any much more flavor on that yet. Regarding store size, you're absolutely right. Already last year and the year before, we started to increase slightly the biggest store size of H and M because in order to get space for the new and foremost that we are rolling out, including home, sports, etcetera. And so we see that this trend will probably continue also this year.
Okay. And just a quick follow-up. How significant is the Super Bowl promotion that you're doing this year? I mean in terms of being a much bigger step in terms of the way that you promoted your business in the U. S?
Well, it all depends on what you compare it to. But of course, it's I mean, we are investing a lot in marketing, and the U. S. Is our 2nd most important market. We continue to grow a lot.
We're a national brand in the U. S. With lots of fans and especially now with online, really important player. And this is not the first time we invest in SUBCRIBE. It's actually the 2nd time.
Great. Thank you very much.
And your next question comes from Chris Chaviaras. Please go ahead, announcing the company name.
Hi, guys. The company name is Barclays. A lot of questions have been answered. I had one on the online launch in the U. S.
Do you now offer click and collect there? And given that the sales growth has accelerated in the U. S, would you attribute SoundCloud sales acceleration to the online launch you did because the Q4 acceleration coincides with the U. S. Online launch?
And staying in the U. S, could you tell us how big the Times Square flagship store is? And when it was opened exactly?
Chris, I think I said one question at a time. Sorry. Sorry. But if you start with the first one that I remember, it was click and collect. Now we don't answer that yet.
But of course, it's something we look into. Regarding sales in Q4, very happy. And of course, it contributed to the online the successful launch in the U. S. And what was the 3rd and 4th question?
Sorry, I
lost it. Yes. Sorry about that. How big is the Times Square store and when you opened it exactly?
Okay. The Times Square, it's large, but I don't have the exact number, but we'll come back to that later in the call, okay? 4,000 square meters is huge.
Okay. And when was that opened exactly?
In November, Mid November, yes.
Okay. Perfect.
As Lady Gaga, she knows.
Okay. Thank you.
And your next question comes from Richard Jaffe. Please go ahead and answer your company name.
Thanks very much. And a follow-up on your comment of in accelerating the growth of some of the new businesses and wondering what the outlook is for these businesses, particularly costs and other stories. Do you anticipate the operating metrics, gross margin, sales per square foot, operating margins and the return on invested capital to be equal or even better than H and M once you gain some economies of scale, some leverage?
Okay. Your first question, primarily costs and other stores, very successful during the year. And we plan to open in at least 2 or 4 new markets across this year, including the U. S. We're very happy to open the 1st store in SoHo and also the online launch of the cost in the U.
S. And regarding stores, again, we are looking at a lot of new opportunities in new markets. But unfortunately, we can't tell you so much more in details. But there are high ambitions and the number of stores will hopefully be at least as many as this year for both costs and stores. When it comes to profitability, we don't disclose I'm sorry, we don't disclose profitability or other profitability metrics per form a or per country for competitive reasons.
Understandable. But the behavior suggests some optimism, I guess.
Could that be our case?
We're always optimistic, but also with a respect.
Very good. Thank you.
And your next question comes from Nicholas Pham. Please go ahead announcing the company name.
Good afternoon. This is Nik Pham with SEB Equities. I was just going to ask you one question at a time, but two questions. Firstly, could you just educate me a bit on what type of costs are actually involved in setting up the French online business?
Yes.
It's as I said, we have very ambitious plans. We're investing a lot. And of course, starting with the infrastructure, IT platform, systems, etcetera. And we have logistics set up. We have customer support.
We have distribution partners, etcetera, etcetera. We have payment structure. It's a long, long list.
Out of the major parts of those costs that you see you need to take, I would assume that some platform costs have already been taken because you've obviously been developing your business in your online business to be able to launch most recently in the U. S. Market. Is that correct?
Of course. We have been investing and spending a lot of money into online and IT and platform for the last couple of years and we've continued to do so. And of course, the idea is to use some of those investments that we have made, absolutely. But the platform if you talk about platform specific for the U. S, we are using part of that platform, but also part will be totally new for these 4 markets and ongoing.
Fantastic. Can I ask you if the which part of the remaining cost that you need to take specifically for a new market would be the larger cost items? Would it be, for example, setting up the customer support operation? Or would it be the logistics side? Or what will be sort of the main portion in terms of new OpEx?
Yes. Without going into each component, but still as Neil said, we have to take still investments in the system development. And even though we have the same more or less the same platform for these new countries to come up, we have to still adapt a lot of things to each market due to legislative things and to customer behavior, etcetera. And of course, distribution centers is a big, big part of the investment and customer support as well. So aggregated, it's a big investment.
But of course, in these cases, we will also gain the revenue much quicker than we have done now for some years when we have been in a development phase. So now we will get the revenue side as well when we are opening in France.
Perfect. Final question. Would one of the 4 main online markets that you're set to open in 2014 be located in, say, Asia, like China?
I think you asked that question this morning. So we'll come back to that and then we have more information.
Thank you very much guys.
I have some information here before we go to the next. We got some information about Times Square. The store we opened there was opened on the 14th November and it's 42,000 square foot or 4,000 square meter.
And the next question comes from Jamie Merriman. Please go ahead. And I'll turn the company name.
Hi, there. Thank you. It's Sanford Bernstein. My question is about the online and the systems integration that you talked about briefly in Q3 that needs to happen in the U. S.
And specifically about integrating the store platform with the online system so that you can support returns in store. And I was just wondering if you could give us an update on where you stand there. And also whether that's something that will need to be developed when you go into France and the other markets that you'll launch on in 2014?
Yes. We I'm sorry, I can't give you much of an answer more than course, we are working a lot about in these areas. But it's always a prioritization because now rolling out online in 4 new markets is, of course, a huge and very ambitious move. And there are lots of things that we want to improve as well as expand. So I'm sorry, I can't give you any more details about when it will come through so to speak, but it's going to be a gradual launch of course of not just in new markets, but also improved functions as well etcetera.
Okay. And is that something that you anticipate? Will you be able to process returns in store in new markets? Or is that was it a specific issue to the U. S?
Or is it something that the whole that whole platform will have to evolve over time?
Sorry, I can't give you more details about the launches and about the details, but we will come back to you as soon as we have more details.
Okay. And your next question comes from Paul Rossington. Please go ahead announcing the company name.
Good afternoon. This is Paul Rossington at HSBC.
Hi. Hi.
There were some comments on Bloomberg earlier on today about your changing some of your sourcing perhaps looking at Africa's potential markets. I appreciate China is still a major or the Far East is still a major hub for your sourcing. But is this likely to see you perhaps move to a higher proportion of sourcing in countries in closer proximity to some of your key markets? Is there a strategic agenda to shortening the lead times to market at all?
This is nothing dramatic This is nothing dramatic here whatsoever. We are continuously looking at the sourcing just as we look at everything else in terms of trying to improve things, efficiency, looking at new markets, the new ways to produce, etcetera. And as we grow our retail operations, I mean, it's not a secret. We will open in South Africa. It's very natural, of course, to look at sourcing in proximity.
But nevertheless, we need to always look at capacity growth since we have very ambitious plans for H and M for many years to come. So this is it's not about moving capacity from Asia to Africa or anything. It's more about building even more capacity.
Thank you.
And your next question comes from Jeff Frodeau. Please go ahead announcing the company name.
Good afternoon. I'm from Morgan Stanley. Just a question about your cash tax payments. I noticed that your cash tax payment this year was less than half of your cash tax payment last year. I was wondering what the reason for that was and also what we should expect in terms of the difference between P and L tax charges and cash tax charges this year?
Yes. Cash tax payment is less than last year. It's simply that we have made less preliminary tax payments during the year. That's the simple question answer. And the second question was?
Well, just how should we expect the relationship to between the cash tax payments and the P and L? I mean, you've obviously given us guidance for the P and L charge for tax this year. How should we think about the cash tax payments relative to that P and L charge?
Yes. I think it will be no major changes. The tax rate for 2014 will most probably be between 23% 24%. And then the tax payments, of course, we are making preliminary tax payments during the year and that can vary from year to year. So But
I mean, because you had a low payment last year, should we assume you have a big payment this year?
No, it's no correlation because now we will add payments in December, January. We have a tax liability due to that in the balance sheet and then we will pay that in December, January. And then of course, we are estimating in Sweden what the profits will be and the tax authorities will send us preliminary tax payments for 2014. Okay.
Thank you. And then just one follow-up if I may. The you're capitalizing I mean, last year, I think you started capitalizing expenses. As I read the accounts, am I right in thinking you haven't yet started to amortize those?
For the major part, we haven't started to depreciate. This year, I think SEK 14,000,000 was the depreciation connected to these capitalized assets that we have in the balance sheet. But as quick as we are taking them in use, we start to depreciate them. And I think these IT investment that is capitalized, we will depreciate them during 10 years.
Okay. That's great. Thank you very
much. And we have a follow-up question from Anchorage Law. Please go ahead. Thanks. You've given us the store numbers for costs and stories and an idea of how many stores you'll put down this year.
Could you do the same, please, for Monkey Week Day, Cheap Monday as a group?
Yes, of course. We see, of course, very interesting potential for all of them, but the expansion is not as aggressive as for cost and storage and home. But we will continue to expand. And if you take monkey, for example, we opened some 20 stores in 2013, and the plan for 2014 is approximately at the same level. Weekday is a bit more cautious.
It was just one opening and one closure last year. And this year, I think it's just 1 or 2 planned as well. Cheap Monday is primarily a wholesale brand and we have around 2,000 customers across the globe in 35 countries and only 3 of our own stores. And I think we plan to open 1 or 2 stores for them, 1 in China and 1 in Paris.
That's great. Thank you. And then just a quick question on the H and M incentive plan and what impact that had within the gross margin in Q4, if any?
That's the I think we wrote €31,000,000 was the total payment, right? And most of that was in OpEx and a smaller part was on OpEx, but just a small part. Sorry, I meant I said it wrong. The most part was in OpEx and the rest on COGS.
So not a significant impact on COGS. No. On COGS. Okay. Thank you.
And your next question comes from Caroline Gulliver. Please go ahead announcing the company name. Hi, it's Caroline Gulliver from Jefferies. I just had a small clarification question around the gross margin or rather the markdown that you expect in the Q1.
And to
clarify, I think you said that you expect it to remain stable as an effective sales compared to 2013. Does that mean a flat impact on gross margin? Or rather do you mean that there should be another negative margin impact
from last year? Flat neutral effect. Perfect.
But of course, that's the estimate that could change, of course, in both ways, but that's the best estimate as of today. Okay?
And we have another follow-up question from Chris Chaviaras. Please go ahead.
Yes, guys. One last for me on the sportswear. I know you mentioned that you're growing the H and M stores inside so that you could accommodate sportswear and home. But in the existing stores that you will be putting them in, what categories are you taking out in order to put sportswear in? How do you make space for sportswear in the existing stores?
It depends from case to case. In several cities, we have several HVN stores. And of course, each country organization is looking to have the best balance with the concept in different stores. So if we don't get more space, then of course, if we want to have sports in, then we have to make to take out something else. But in most cities, we have several stores.
So this will broaden our customer offering. So that will be a game for the customers as well as for H and M. So that's done case by case.
It could also be that we add more space and we make refurbishments, etcetera. In connection to that, we put in H&A Sports.
Okay. And would you say that SportsWare could be say something like 10% of the whole offering in a store? Or is it too much?
I don't want to give any huge figures. Sorry, we don't break down. We have lots of different concepts, but we don't give figures for each one. I'm sorry.
Okay. No problem. Thank you very much.
Thank you. Thank you.
Thank you. So we have no further questions at this time. Please continue.
So thank you all very much for participating in this conference call and welcome back for the Q1 results on the 27th March. Goodbye.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect. Thank you.