Thank you for standing by, welcome to the six-month results for 2013 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 will need to press star one on your telephone. I would now like to hand the conference over to your speaker today, Nils Vinge. Please go ahead, sir.
Thank you. Welcome to this telephone conference on the occasion of H&M's six-month results for 2013. I have our CFO, Jyrki Tervonen with me, we'll be happy to answer your questions after the presentation. You will find the presentation slides for this telephone conference on h&m.com. Please look at the slide, second quarter 2013. It's been a challenging period for fashion retail in many markets. H&M sales grew strongly in Asia, for example, in China, Hong Kong, and Japan. In total, group sales were not satisfactory. This was mainly due to the tough macroeconomic climate that continued to affect market conditions in many countries, as well as unfavorable weather in March and large parts of April in several of our large markets. Group sales increased by 5% in local currencies in the second quarter. On comparable units, sales decreased by 4% compared to the same period last year.
The continued strengthening of the Swedish krona against most sales countries' currencies led to substantial negative translation effects, both on sales and results. Translated into SEK, sales including VAT amounted to SEK 36.9 billion. Just to illustrate the size of the effects, sales would have been SEK 1.8 billion higher using the same exchange rates as last year. Reported net sales in SEK amounted to SEK 31.6 billion in the second quarter, unchanged compared to last year. Gross profit was SEK 19.3 billion, corresponding to a gross margin of 61.1%, compared to 61.7% in the second quarter of 2012. The largest reason for the difference was increased markdowns. The high stocking rate going into Q2 in combination with unusually cold weather during spring led to higher markdowns than planned. Markdowns in relation to sales had a negative effect on the gross margin of 90 basis points compared to Q2 2012.
Meanwhile, the combined effect from external factors such as cotton prices, cost inflation, and the US dollar was more or less neutral on purchases for the second quarter compared to the corresponding period the year before. If you look at the next slide, you can see how the gross margin has developed since the year 2000. Seen in a longer perspective, the gross margin in the second quarter this year is still at a good level. Please return to the slide, second quarter. Looking at costs, SG&A increased by 5% to SEK 13.3 billion. In local currencies, the increase was 10%. The increase was entirely due to the expansion into our investments in IT and online, as well as & Other Stories, the new fashion brand.
Although most of these large and long-term investments have not yet generated revenue, we see them as wise and necessary in order to build an even stronger H&M. At the same time, tight cost control is very important, and cost control remained good throughout the group also in the past quarter. Costs in comparable stores decreased compared to the second quarter last year. Operating profit amounted to just above SEK 6 billion, corresponding to an operating margin of 19%. Profit after financial items was SEK 6.1 billion, compared to SEK 7 billion last year. Profits were negatively affected by increased markdowns, long-term investments, and substantial negative currency translation effects. After a tax rate of 24%, net profits amounted to SEK 4.7 billion. That equals earnings per share of SEK 2.81 compared to SEK 3.15. Now looking at some other key figures. Please turn to the slide, Q2 data.
Stock in trade increased 12% in SEK and 16% in local currencies compared to the same time last year. The increase is mainly explained by the expansion, but also by the fact that sales did not increase as much as we had planned. The inventory level as of the 31st of May was higher than planned, mainly due to the cold spring, but the composition of the stock in trade is satisfactory. Cash flow from current operations was SEK 11.2 billion, up from SEK 10.7 billion. The increase is mainly due to lower tax payments early in the year. Investments in terms of CapEx rose to SEK 3.4 billion from SEK 2.6 billion, and consisted mainly of investments in new stores, but also in IT, CP, and logistics. The financial position of the group remains strong. Liquid funds amounted to SEK 9.1 billion compared to SEK 13.5 billion.
Return on equity was 45% compared to 48% last year. Now some words on our expansion. Please turn to the slide, expansion. Our global expansion continues. Earlier this year, we ramped up expansion to around 250 stores net for 2013 from previously planned 325. We've opened more than one store per day this spring. We opened 98 stores in the second quarter, and we closed eight. Today, we have more than 2,900 stores globally. We are increasing our presence in Asia, where we now have 200 stores in six countries. China is the single largest expansion market of the group, but we're also growing in Japan, South Korea, Singapore, Malaysia, and Thailand. We're also expanding with our other brands, COS, Monki, and Weekday. We're of course, looking at more countries in this exciting region.
We have a business model that enables us to grow deeply into each market as well as to expand successfully to new countries. In March, we took our first step to the Southern Hemisphere with the first H&M store in Chile. It was an amazing opening in Santiago de Chile, with more than 2,500 customers queuing up at the flagship store in Costanera Center. Thus far, it is one of the best-selling stores of the group. We see great potential for H&M to grow in this part of the world, and we are looking at other markets. H&M is present in 49 markets across five continents. The first stores in Estonia, Lithuania, Serbia, and Indonesia will open in the autumn. Next year, Australia will become a new market for H&M, as we will open our first store in Melbourne.
We already see a great interest in H&M ahead of launch. Please turn to the next expansion slide. H&M is also expanding online. In August, H&M will launch shop online in the U.S. In parallel, we continue our work on the rollout of online globally with the aim of adding more online countries in 2014. We are growing with all our brands and especially with COS, which has had a very good development and is expanding from existing as well as in new markets. We're also very happy with the fantastic start of our entirely new fashion brand & Other Stories. Please turn to the next slide. Since the launch on eighth of March, customer response has been overwhelmingly positive throughout the spring. During the second quarter, & Other Stories has opened a total of seven stores. London, Copenhagen, Stockholm, Berlin, Paris, Milan, and Barcelona.
We're looking forward to continued expansion. For example, the second store in Berlin will open in the autumn. Shop online at otherstories.com is available in 10 European markets and is also performing above expectations. The fantastic response by customers clearly shows that the long-term work of developing & Other Stories has been the right thing to do. In parallel, we are broadening the offering of the H&M stores. Please turn to the next slide. H&M will launch a considerably extended and updated sports concept for women, men, and children at the beginning of 2014. The new sports concept will be launched in H&M's existing online markets and in selected H&M stores in around 15 countries to begin with.
Now we're also delighted that H&M will dress the Swedish Olympic team, both for the Winter Olympics and Paralympics in Sochi in 2014 and for the Summer Olympics and Paralympics in Rio de Janeiro in 2016. Our design teams are developing these collections in close cooperation with a group of Swedish Olympians, including gold medal winners such as Therese Johaug and Anja Pärson. Our customers will also benefit from this R&D cooperation as the clothes for H&M's updated sports concept will also have been tested by the Olympic athletes. Now, before we start the Q&A session, just a few words to summarize. After many years of boom in private consumption up until 2007, the recent years have been clearly tough for fashion retail, including the past six months in many of H&M's large markets. Still, we have performed relatively well.
We keep taking market share in most markets, we strengthen our position in customer service. H&M's business model works everywhere and allows us to grow deep into each market, the potential to expand is huge. We're also making some substantial long-term investments that will generate large revenue in the future. Our position is strong, we have an attractive offering. We see that sales in June have started well. Sales increased by 14% in local currencies from the 1st to the 17th of June compared to the same period last year. We have strong collections and campaigns for the autumn. Now we're happy to take your questions.
We will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Please ask one question at a time and wait for your answer before submitting another question. Your first request from Richard Chamberlain from Bank of America. Please ask your question.
Yes, thanks very much. Good afternoon, everybody.
Good afternoon.
Good afternoon.
Afternoon. The first question I've got, please, got two questions. First one is on the gross margin. You indicated in the statement that gross margin was down 60 basis points, but you had a markdown impact of 90 basis points. What was the balance, the plus 30 basis points? Was that coming from mix and pricing, or was there something else driving that?
Well, as you know, the gross margin is affected by a lot of different factors, we say maybe 25, 30 different, there isn't any, 30 basis points is really not something material.
Okay, there was no one major factor then that's moving gross margin positive. Okay. Thanks. Second question is just on the current trading number that you gave for the first 17 days of June. Have you noticed an increase in the promotional activity, industry promotional activity so far in June in your major markets?
Well, the sales performance up to 17th of June, it's a mixture, of course, of sales and full price selling. We're looking at the different markets. We see quite heavy summer sales. When looking at our own selling, we started the sales period more or less the same week as we did previous years. Coming back to the sales activities in different markets, it's quite big campaigns and reductions that we see.
Okay, the timing, the calendar timing sounds about the same, but the depth of promotional activity sounds like a bit more than last year. Is that fair?
Yeah, that's quite fair. We have started the sales in most of our countries the same week as we did last year. I think it's in certain key countries, it's maybe delayed one week, but more or less, the same starting point as last year.
I'd like to add, the depth varies a bit from country to country. What we see is, of course, aggregated for the group in total.
Right. Okay. It would be more, say, here in the U.K. than it would in Japan, by the sounds of it, as an example. Yeah. Okay. Okay, thanks very much.
Your next question from Simon Bowler of Exane. Please ask your question.
Hi, gents. Just wanted to ask a quick question on the long-term investments you've been making. If I recall correctly, the start of the year, you stated these would be higher this year than they were last, and also that the timing of the cost would be quite variable between the quarters. I was just wondering, with the increased visibility you now presumably have being halfway through the year, whether you can confirm it's still your view that investments will be higher year-on-year, and also how you expect that to play out between the first half and the second half.
It's still that the long-term investment this year will be on a higher level than last year. Exactly how they will fall in Q3, Q4. No major shifts between first and second half of the year. On an aggregate level this year, the investment will be on a higher level.
Okay. At this stage, do you have any sense on whether these will continue into the next financial year, or does that depend how they pay out across the second half?
They will continue also during 2014, but we have to come back to the levels when we are in connection with the year-end closing.
Okay. Certainly. Thank you.
Your next question from Anne Critchlow of Houlihan. Please ask your question.
Good afternoon. It's Anne Critchlow from SG. Hi there. I had a question on China and Russia because it seems as if these countries are producing the weakest comparable sales figures as far as we can calculate. Could you comment on those, please?
No, that's not correct. I think it's always difficult when you just look at the revenue increase and the number of stores because we expand so much. It depends, of course, when the stores open in the quarter, et cetera. No, they don't have the weakest. As a matter of fact, China and Russia has a very good development.
Okay. Thank you. Just a quick comment also, please, on your sourcing, with a focus on Bangladesh, whether your cost of goods sold is likely to rise or whether you'll be shifting sourcing to other regions.
Well, the sourcing is something we always work on, and Bangladesh is one important country, and China is still the most important sourcing country, and we always look at new markets, but it's not that we are going from one country to the other. Again, the sourcing, there are so many factors in the sourcing where costs, of course, are important, but it's also fashion, it's quality, it's lead times, it's sustainability, et cetera. Yes, we see an increase of the salaries, of course, among the suppliers. First of all, in China, of course, but also in countries like Bangladesh, where we actively contribute to this because for sustainable reasons, of course, everybody needs to be able to live on their salaries.
Okay. Thank you.
Your next question from Eric Carson of AKO Capital. Please ask your question.
Hello. Thanks for taking my question.
Yes.
I had a question on the online rollout. You indicated you will open several markets next year. Can you just tell us what gives you the increased confidence on that you will be able to accelerate this now? Which markets do you think are the very most attractive to open online in? Thank you.
Well, this is, of course, one important element in the long-term investment, and we are working intensively with preparations for global rollout. That's why we have more confidence now in announcing that the ambition, at least, is to announce several countries already next year. We will come back with more information about what markets they will be.
Thank you.
Your next question from John Kernan of Cowen. Please ask your question.
Hi. I was just wondering if you'd comment on what the capital spending plans for this year and next year might be, and given the high dividend, if you would consider cutting the dividend or you'll just spend negative cash flow while you grow.
The CapEx for this year, when we went into this year, we said the capital expenditures will be somewhere between 7 billion and 7.5 billion SEK, and now it leans more up towards the 7.5 billion SEK for this year. When it comes to future dividends, that's clearly a question for the board of directors and finally, a decision to be made in connection with the annual general meeting.
Just in theory, are you guys okay paying out a high dividend and just you having negative cash flow after CapEx, or that is more of a board question?
As I said, I think all these dividend questions, it's a question for the board of directors.
Your next question from Jamie Merriman of Bernstein. Please ask your question.
Hi. Good afternoon. Thanks very much.
Good afternoon.
Good afternoon.
My questions are about some of your newer markets or where you're planning to launch. I was just wondering if you could tell us a little bit about how you're thinking about the Southern Hemisphere collection, maybe what you've done from a personnel perspective to build out that launch. Then also from a distribution perspective, in launching the store in Chile, what distribution capabilities do you have for the region? Have you already also started in Australia along the same lines?
Okay. That was three questions in one, but I'll try to answer.
Sorry.
As good as I can. If I start with the logistic question, since I was head of logistics prior to this position, I'm very proud of the logistic setup in the company, which is very scalable.
We have a very efficient logistics supply chain, and in South America, we work together with a third-party supplier.
Okay.
It's outsourced. Obviously, as you look at the figures, we have had great success with the first store in Chile, and the customers, they really appreciate H&M and our collections. We have now a solution for how to handle the reverse seasons. Exactly how we do it, I will not tell you.
Okay.
Obviously, the customers can shop the season fashion and latest trends. Regarding Australia, we have signed one store in Melbourne, and it's a fantastic site, and we will come back to you about more details later.
Thanks very much.
You're welcome.
Your next question from Charlie Morris of Deutsche Bank. Please ask your question.
Good afternoon.
Good afternoon.
Couple of questions on the gross margin.
Please one at a time
OpEx, yeah. On the gross margin, I think you've kindly, in the past, given us some indication as to what you think the outlook for aggregate external factors is. Do you think that they will be neutral or positive as we get into the second half of the year?
Yeah. Let us make it clear, when we're talking about these external factors like cotton capacity, salaries, transportation, and the currency effects, mainly from the US dollar.
Yeah
When we're talking about these external factors, that's more or less what we are saying is spot prices and/or market prices. Our prices can, of course, be something else.
For the coming quarters, as we aggregate these four or five external factors, the effects on our purchases would be then in Q3, neutral, maybe slightly negative, and that also goes for the fourth quarter.
That's great. That's very helpful. On the OpEx, the first question is on your comment on same-store costs being down year-on-year. Was that only or overwhelmingly because the volumes and the sales were down, or is there a cost-saving program, so would they have been down anyway?
We have a really good cost control. It's one major part of our mindset within the group to be really cost-conscious. In the comparable stores in the second quarter, they were down in comparable stores, the operating costs. One has to remember also that most of those operating expenses are more or less fixed on the short term, that we can adjust and have some kind of flexibility with staffing in the stores. Also there, it differs a lot from market to market. Some markets, we have to set the schedules for one month ahead. Other markets, it's more flexibility. Of course, when having a quarter with a like-for-like development of -4%, it's really hard to balance it out in a quarter.
Yes, very clear. I suppose what I'm trying to get to the bottom of is it sensible to assume that you're able to deliver declines in same-store costs in the subsequent quarters because of ongoing cost-saving initiatives or whether they were down in Q2 purely as a result of the weak revenues?
I think as I tried to explain, we are always looking into the cost situation. We don't have any huge cost-saving programs going on, except that we are always looking at traveling expenses. That's something that is going on even with the turnover development, which is better than -4% like for like. Doing it both in good times and bad times, then you come out easier in the work.
That's very clear. If I could just move on to the non-like for like OpEx. Is the cost of opening new stores the same as it ever was and therefore this extra cost growth purely related to strategic initiatives or is there an element also of the cost of growth going up?
I think it's, again, you can't give a simple answer on that, but obviously it's much more costly to open a new store in Chile than adding a next store in Germany, right? As I said, the increase in OpEx is expansion and the long-term investments that we are doing.
Great. Thank you. That concludes my questions.
Good.
Your next question from Christodoulos Chaviaras of Barclays. Please ask your question.
That was a good try. Hi, guys. Chris Chaviaras here from Barclays. Two questions from me, one at a time. You are talking about the continuation of the investments in fiscal year 2014, but I was interested in finding out the timing where you're going to see revenues going up because you have talked about investments actually yielding into higher sales. Could you help us maybe with a couple of examples of the investment that you have done and what you expect and the time lag with that? Is it possible? I guess you have invested in the online platform, at which you expect to get benefits as you launch online. Is this the main part or what other parts could consist the revenue growth?
Yeah. As you mentioned, online is one part which is starting to generate revenues. In August, we are opening the online sales in U.S., and as we said earlier in this conference call, we have the ambition to open several online countries during 2014. That are exactly examples of long-term investments that we have done the past two years.
Now they are starting to generate revenues. Another example is & Other Stories. A third example is the broadening of our existing concepts like the sports concept. Until now, they have, of course, more or less costed a lot of investment money. We are so assured that this is the right and wise thing to do for us in the long term, and they will generate big revenues in the future.
No, that is a fair comment. Do you expect for you to have to invest more in the online platform as you roll out in the new countries in 2014? Should we consider that this investment is now done?
I think it will continue, of course. Each market we have to make some adaptations for legislative things. As I said also, the long-term investments for 2014 will continue, but exactly how, what level that we have to come back to in connection with the year-end. It's not that we are just making an one-time investment. It will continue, but it will be on a reasonable level.
Thank you.
It will be within our CapEx for a year, so it's not a dramatic thing.
Okay. That is fair. My second question then is on the cash and the dividend. I totally understand that you're not going to say what you're going to do with the dividend. That happens in January. You have commented in the past that you do You like to above the 50% payout ratio, which is the norm, which you always exceed though. You like to give out to shareholders excessive cash, and your cash has been going down for at least two consecutive years now. There was another 30% down year-on-year this quarter. Is there a level of cash that you consider as non-excessive? Is there a threshold where you say that, "You know what? We don't want to give more of our existing cash position." Is there such a level?
I think we're looking at a strong financial position, and I think that the most important is when looking at the cash situation is that we will be able to expand 10%-15% per year, and also have the opportunity to take opportunities as they rise up. I think that's the mindset when looking at the cash situation within the group. I think that says a lot that if we have a long-term goal to increase 10-15 stores and also to have the flexibility to take opportunities that might come up. Of course, we should have the funds for that.
Okay. Is the EUR 7 billion-EUR 7.5 billion the normal kind of CapEx level going forward, do you think? Should we assume something like that?
We will come back to the level for next year. This year, it most likely will land somewhere between more or less SEK 7.5 billion. As we said earlier, it's a moving target. It can go up and down, and when it comes to next year, of course, we still remain the expansion 10-15 more stores next year, but they are not negotiated, the major part of them. What the capital expenditure will be 2014, that we have to come back to.
That's fine. Okay. Thank you very much for that.
Thank you.
Your next question from Simon Irwin of Credit Suisse. Please ask your question.
Good afternoon, gentlemen.
Good afternoon.
Firstly, just could you talk a bit more about LATAM? I mean, obviously, we've had one store opening in Chile, and we've seen the numbers which look quite high. Obviously, judging by your comments, you're planning on opening many more stores in many more markets. Given very high levels of import duties in Latin America, how do you price yourself in Chile? How would you expect to price yourself in other markets, and which other markets are you looking at?
We see definitely a big potential in Latin America, we're very happy with the entrance in both Mexico and Chile. You're right. Most countries in Latin America have difficult import barriers, et cetera, that we are, of course, looking into. Unfortunately, I can't comment on when we will enter and price levels. For us, it's always about having the best customer offer, fashion quality at the best price in every market.
Do you think you might have to source some product locally?
We are open, we're very pragmatic. We have been sourcing in Latin America and Mexico before, we don't rule out anything.
Okay. Can you just talk a little bit about your admin expenses? Because they're obviously going up relatively fast at the moment while other costs are quite static. Firstly, are they predominantly krona-oriented, headquarters based or are they in a broader mixture of currencies? Where's that money being spent?
The majority is Swedish-based. It's our organization here in Stockholm. As you know, we have a profit and loss where we have some functions going up in the cost of goods sold, like the buying organization, logistics, et cetera. The rest of the admin departments or functions in Stockholm, they will be there, like IT, for instance, part of IT is there. They are more Swedish krona-based.
Should we expect to see that continue at a similar level through the rest of this year?
I think when looking at both the selling expenses and administrative expenses, we have a good cost control, and it's more or less reflecting the expansion that we have and all these long-term investments. When we are ramping up the long-term investments or when we are building up a new concept, of course, we also need to look into the organization when it comes to the administrative part.
Okay. Just one final one. The net interest income the first half is down a third on the prior year. Are there any kind of particular features within that?
Do you want to listen to the other brief?
No, it's a natural result from the fact that the liquid funds are lower and interest rates are lower.
Right. Thank you.
Your next question from Samantha Conti of Women's Wear Daily. Please ask your question.
Hi, good afternoon.
Good afternoon.
I just wanted to know, in the second quarter, in terms of sales, were there any product categories, clothing, accessories, anything that were underperforming? I'm just curious, you talked about the weather, the unseasonably cold weather, stock, et cetera. Did anything sort of flop or fall flat, or what kind of feedback are you getting from the shop floor in terms of product and how popular the product has been?
No, we are happy with the collections, and we see that it's mostly footfall traffic in the stores that have been weaker due to the weather and macro.
Okay. No products in particular that didn't do well.
No
It's a footfall issue.
Absolutely.
Okay. Thank you.
Your next question from Richard Jaffe of Stifel Nicolaus. Please go ahead, ask your question.
Thanks very much. Two questions. One is U.S.-centric. How do you plan to build the inventory to support the online business? Will it be all the SKUs that are seen in stores, or will it be an additive assortment? The second question relates to-
Please repeat
Okay. First, go ahead.
Yes. As it is right now, it's the same products in stores and online in the existing eight markets, even though it's still not 100% mirrored in online. We are working on expanding the offering also online. Today, I think it's just above 50% or something you can find online. I guess that will be the start in the U.S. as well. I think that will develop over time.
Regarding South America and the different seasonality, do you have a separate line when you go into South America and then into Australia, or is it last season's product being introduced to those markets to adjust for the weather?
We have developed a method of process to supply the right mix to these markets, they can find seasonal products and the latest trends, we don't go into detail exactly how we've solved it.
I understand. Thank you very much.
You're welcome.
Your next request from Rebecca McClellan of Santander. Please ask your question.
Yeah. Hi, good afternoon. Rebecca. A couple of questions, please. Firstly, on your CapEx. The SEK 7.5 billion full-year guidance, if that's what we want to call it, implies a flat second half CapEx package despite an increased number of openings. Does that imply that with those sort of forward CapEx in the first half, or that there's some one-off CapEx perhaps, CapEx of one-off nature in the first half, or is it a question of timing? Is it
I think it's a matter of timing. The target of SEK 7.5 billion is still there. As Jyrki said, this is of course a moving target, could be even lower or higher. This is the best information as of today.
Okay. It's all of sort of a recurrent nature, yeah?
Say again, please.
There's no sort of one-off CapEx within the target. Okay. Secondly, could you just give us an idea of, I saw a comment on Bloomberg this morning about negotiating sourcing in renminbi or the eventuality. Could you give us a word or two on that, please?
Yeah, of course we are looking into this, there is nothing new to tell the market yet. No, there's nothing decided.
Okay. Is it sort of at an advanced stage, or is it
Oh, I don't want to comment. We will see.
Yeah, we are looking into that, but as Nils said, nothing, no decisions made. Let's see in the future if we start to also use the renminbi. Yeah, nothing new to report on that.
All right. Thank you very much.
You're welcome.
Your next question from Niklas Ekman from SEB Equities. Please go ahead.
Indeed. Thank you very much. Good afternoon. Two questions, one at a time. Firstly, I'd like to ask you about your performance, say, over the past half year or in the most recent quarter, in terms of like-for-like. Do you think you've actually been losing market share in, say, your key Nordic plus U.K., France markets? Which is, do you think you've actually performed in line with the market or maybe even taking market share?
It's of course always very difficult to specify what is the market. It depends on how you define it. We have grown in the group with 5% in the first six months, most of our markets have actually had declining markets. In that perspective, we've taken market shares. Of course, there are some markets we've been stronger than others. Also have to look at, if you take the U.K. and the U.S., for example, where we meet very strong development from last year.
Could I also ask you a follow-up question on the like-for-likes recorded in, say now fiscal Q2, negative four-ish. How does that break down in terms of footfall conversion rates and maybe price mix?
The main issue is the footfall. Our conversion rates are up and also the average receipts, but the footfall is down. That's mainly a footfall issue.
Once you've got the customers in your store, they actually like what they saw.
Yeah.
Can I ask you, finally, on the issue of currencies, given the quite negative translation effects that you've been experiencing now for some time in your P&L in particular, is there any discussion to actually change the currency of reporting at H&M?
No concrete, of course, we have got the question several times why don't you report in euros, et cetera. Of course, if we have had a euro-based reporting, the development have been quite different during, especially looking at the years where the Swedish krona has been strengthening. I can't remember exactly, sometimes when we looked at 2009, I think it was in Swedish krona, the development from 2009 to 2013 was something like 20%. If we would have had euro as the reporting currency, I think it was around 50%. Of course, that's how it goes when Swedish krona is strengthening, and vice versa of course. Okay. No concrete plans to change the reporting currency.
I understand. Thank you very much, guys.
You're welcome.
Your next question from Richard Edwards from Citigroup, London. Please ask your question.
Yeah. Hi. It was a question on the U.S. store portfolio. I noticed you shut seven stores in the first half, which is more than any of your other markets. I just wondered what drove those closures. Any themes you could pick out of that?
Yes. Most of them were old stores and not so profitable, and in some cases we got a better store across the street, or in the same mall, or whatever. Yeah, no problem.
Should we still assume store openings for the year on a net basis? If so, can you give us rough sense of how many stores you might open this year in the U.S.?
Well, we definitely will see a lot of store openings in the second half in the U.S. We said that the U.S. it looks to be the second largest expansion market this year.
Maybe I should add, just closing down stores, it's quite normal for us if we find a better location, as Nils said, or we need more square meters or another reason. It will always be a rotation in closing down some stores when it's coming up, better locations.
Okay, thank you.
You're welcome.
Your next question from Dana Telsey of Telsey Advisory Group. Please go ahead.
Good morning, everyone.
Good morning.
As you think about pricing and the components of the gross margin, how is inflation, raw material costs impacting future pricing going forward, and does it adjust regionally? Thank you.
Well, as Jyrki said before, if you aggregate the external factors as we call them, which includes also raw material like cotton, capacity, batteries, transport, et cetera, they are roughly in a neutral or slightly negative for Q3 and Q4 as we see it today. Again, this is before we negotiate and before we work with improvement, efficiency gains, et cetera. This is prevailing market prices and spot prices.
Just one other quick thing. On the newer concepts that you have versus the core H&M and online, qualitatively, do you see the returns of the business changing at all with online coming into the mix and how that contributes to the bottom line? Thank you.
Yeah. We are very excited about online and the opportunities that that creates for us. For us, we see it not just as another channel, we talk about the seamless offering and the multi-channel. That's why we are investing so much in this. It's one thing to just set up a pure online store, but we are really looking to make it integrated with the retail store, the physical stores. From a marginal perspective, if you look at the online operations we have already in eight markets in Europe, they are very successful and profitability is on par with the retail operations.
Thank you.
Your next question from Paul Rossington of HSBC. Please ask your question.
Good afternoon, gentlemen.
Good afternoon.
Good afternoon.
I've just got a question about your expansion profile from a store perspective. It just appears that even though the U.S. and China might be your biggest markets of expansion from a single or two territories per store, you're not materially diluting your exposure to those core European markets, which are, A, most challenging, and B, where we might expect you to face the biggest threat from increasing competition. Is there some timeframe or a target you're aiming for to reduce your exposure to Europe via expansion into some of these Asian or American markets? Can you give us any timeline or percentage target of revenues somewhere?
No timeline and no percentage target for revenues. This is very pragmatic that we see. Remember, we still have a huge potential to grow in Europe, and I think that's one of the strengths of the company and the business model, that we can still expand in what you call mature markets, perhaps. We have a business model that works in big cities, smaller cities, and mid-size cities, as well as shopping malls. There's a lot of potential for us to grow for many years in Europe. On top of that, we can grow in new markets in the U.S. and Asia, et cetera. Of course, if you look at the opening so far this year, around 20% or something, or 20%-30% is actually happening in Asia and Russia and those, some people call them emerging markets. For us, they're all new markets.
Okay. Thank you.
You're welcome.
Your next question from Omar Saad from ISI Group. Please ask your question.
Thank you. Hi. I was wondering if you could discuss any changes that you're seeing, either globally or regionally, in the evolution of the competitive landscape. Are you seeing a lot of new entrants, whether it's bricks-and-mortar fashion retailers or online fashion retailers? Are they having an impact in the marketplace or
Fashion apparel is one of the most competitive industries in the world, and that's why we can't become complacent. We have to always be on our toes and try to improve things. That's why continuous improvement is one very important value of the company. We see, of course, obviously online retailers coming to the market as well as new bricks-and-mortar players. At the same time, we also see competitors going out of business. I think all in all, it remains a very tough and competitive market, and we can never relax. We see a lot of opportunities, and we have great confidence in what we do.
Thank you.
Once again, it is star and one if you wish to ask a question. There are no further requests at this time. Please continue.
Okay. Thank you all very much for participating in this conference call, and welcome back for the nine-month results on the 26th of September. Goodbye.
That concludes the conference call today. Thank you for participating. You may disconnect.