Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the ANM First Quarter 2019 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 1 o'clock Eastern Time.
I would now like to hand the conference over to your speaker today, Neil Dink. Please begin your meeting, sir.
Thank you, and welcome to the telephone conference on the occasion of H&M's Q1 results for 2013. I have our CFO, Georgi Tarvanon, with me today, and we'd be happy to answer your questions after the presentation. There are a lot of things going on at H&M. This weekend, we are opening the very first H&M store in the Southern Hemisphere in South America. We're also very happy that next year, Australia will become a new market for H&M.
Next year, H and M will also launch an extended sports concept with updated and developed selection of functional sportswear in a wide range. We're also very excited about the successful launch of our entirely new fashion brand, And Other Stories. And Other Stories has been very well received by customers with fantastic reviews and sales have exceeded our own high expectations. And not least, today we have published our new sustainability report. Our sustainability work is very important to us, and we recommend you to read the report, which is available on our website, hm.com.
On hm.com, you will also find the presentation slides to this telephone conference. So there is a lot going on, but let's start with the Q1. Please turn to the slide, Q1 2013. The market for fashion retail remained challenging in several of our markets in the Q1. Even though sales were strong in Asia and our fully mobile adapted H and M shop online was very well received in our 8 online markets.
Group sales did not live up to our own expectations. This was mainly a result of continued macroeconomic uncertainty in many countries and also due to unfavorable weather during parts of the quarter, especially in Europe and North America. And now in March, the unusually cold weather with snowstorms has delayed the start of the spring season in many of our markets. Furthermore, sales in March, which will be published on 15th April 2018, should be seen in the light of very strong sales increase of 26% in March 2012. Coming up to the Q1, H and M increased sales including VAT by 6% in lower currencies.
In comparable units, sales decreased 3%. The calendar effect was negative, just over 2 percentage points, mainly due to the new year adding 1 HSA last year. The Swedish krona continued to strengthen against most other currencies. Again, currency translation had a negative effect on sales and results. The negative effect on sales from currency translation was approximately DKK1.3 billion in the Q1 using same currency rates as in Q1 2012.
Reported net sales in SEK in the Q1 grew by 2% to $28,400,000,000 Looking at sales in some of our markets, please turn to Slide, sales per market. We are present in 48 markets today and we clearly see that in regions that we are that were not as negatively affected by external factors, our collections have been well received. Sales were strong in Asia with China in the lead. Thailand. The start of the year has been slow for fashion apparel in Germany, our biggest market.
H and M in Germany has in line with or better than the market, and this should also be seen against stronger comparables from last year. The U. S. Is the 2nd biggest market in the group and H and M is growing fast. We are looking forward to the launch of H and M shop online in the U.
S. This summer as well as the opening of 2 new quarter, but should be seen against stronger comparables from last year. Going back to some profit numbers, please return to the Slide 1st quarter 2013. Gross profit increased marginally to RMB15.7 billion from RMB16.5 billion corresponding to gross margin of 55.2 percent compared to CNY55.8 billion in the Q1 and internal, and is also affected by the decisions we take based on the strategy to always have the best customer offering in each market. The overall effect from external factors such as cost inflation and the U.
S. Dollar was more or less neutral on purchases for the Q1 compared to the corresponding period the year before. Markdowns in the quarter increased as the consequence of sales not increasing as much as planned and markdowns in relation to sales have a negative impact of approximately 50 basis points on the gross margin. We're currently in a period of large long term investments and we've been doing so for some time. We are investing in online and IT at the same time as we are developing and launching our new fashion brands and other stories and broadening our product range with, for example, extended sports concepts.
The fantastic reception by customers of and other stores clearly shows that extensive and long term work behind this, this new fashion brand has done the right thing to do. All of these long term investments will strengthen HCM's position even further in the future. Meanwhile, cost control percent in SEK and 8% in local currencies. The increase is fully explained by the expansion and the longer term investments and comparable source costs were down. The operating margin was 11% compared to 12.7% last year.
After a tax rate of 24%, net profit amounted to CAD2.5 billion compared to CAD2.7 billion last year. And earnings per share amounted to DKK1.49 compared to DKK1.65 billion. And now looking at some other key figures, please turn to the slide key data. Stockton Train amounted to 13 point 8,000,000,000, an increase of 12% in SEK and 14% in lower currencies compared to the same time last year. The increase is mainly explained by expansion, but also due to sales not increasing as much as planned.
The inventory level as of the 28th February was somewhat higher than planned, although the competition of the second phase was satisfactory. As you can see on the next slide, stocking trade inflation sales rolling 12 months was 11.4%, which is still okay seen over time. And if you please go back to the Slide 2, Hazel. Cash flow from current operations was $3,800,000,000 an increase of 1 point $6,000,000,000 Investments in terms of CapEx rose to $1,600,000,000 This affects the higher rate of expansion and also that we continue with our long term investments in IT, online and other stores and broadening our product range. Our estimated CapEx for 20.13 will be in the higher range of $7,000,000 to $7,500,000,000 at current exchange rate.
Now some words on our expansion. Please turn to Slide 8. We're ramping up the pace of expansion to announced 325. Today, we have more than 2,800 stores and our global presence is strong. Our exposure to Asia is growing increasingly with China as the market where H&A will open the largest number of stores also in 2013.
We have opened in more than one new country per year in Asia during the past 5 years. And today, H and M has stores in 6 Asian markets. The potential for H and M is large in this part of the world also for the future. And we're looking at more markets also in the Southern Hemisphere. Already on Saturday, this Saturday, this weekend, we will take the first step into the Southern Hemisphere with the opening of H&M's very first store in South America in Chile.
We see great anticipation ahead of the opening. It will be a flagship store in the very best location in the shopping mall of Constantera Center in Santiago this year. Other new markets this year will be Estonia, Lithuania, Serbia and by a franchise, Indonesia. So in total, we will add 5 new markets also in 2013 for the 3rd year in a row. Looking to the next year, we are very happy to reveal that our expansion in the Southern Hemisphere will continue when we will open in Australia in 2014.
The other brands of the H&M Group are also expanding. Pulse in particular is growing strongly. We're also very happy to have added yet another new brand to the H&M Group and other stores. Please turn to the next slide. Our new fashion brand, And Other Stories, opened its first store in London 2 weeks ago on Regent Street.
And on the same day, shop online on stories.com started in 10 markets: Belgium, Denmark, Finland, France, Italy, the Netherlands, Spain, the U. K, Sweden and Germany. The 2nd store opened in Copenhagen last week. Everywhere, the response by customers has been very positive. Sales, both in stores and online, have exceeded our own high expectations.
And tomorrow, another store will open here in Stockholm, at the NTTX Gauteng, and we see a huge interest from customers ahead of the opening. Hands and other stores has attracted great attention in press and social media. During the spring, openings will follow in Barcelona, Berlin, Milan and Paris. We are convinced that other stores will become an important part of the H and M Group in the future. In parallel, we're also preparing to expand H and M's product ranges.
Please turn to the Slide H and M Sport. H and
M plans to launch an updated sports
concept already beginning of 2014. This new sports concept will be launched for women, men and children. The ranges will be considerably wider than today and will include sportswear in functional qualities with specific ranges for various sports activities. The new sports concepts will be launched in H&M's existing online markets and in selected H&M stores initially in approximately 15 countries. Concept development like this enables us to further strengthen our customer offering as well as the H and M brand.
A strong customer offering also includes that H and M should be the more sustainable choice for our increasingly aware customers. Sustainability is therefore high in our daily agenda and has been an integral part of our business for some time. Please turn to the next slide. We invest substantial resources and work actively in order to promote social development and reduce environmental impact in the communities in which H and M is active, as well as to ensure sustainable development for H and M long term. We also encourage our customers to make more sustainable choices.
And today, we're launching our yearly spring collection under the label Conscious Collection. This collection for women and men includes garments with materials such as organic cotton, recycled polyester and stem cell. The collection will be accompanied by a Red Cross collection for women, conscious exclusive collections that will be launched on the 4th April. H and M is already the world's largest user of organic customers since a couple of years. Our goal is that by the year of 2020, all cotton in AGM Farming should come from more sustainable sources.
Sustainable sources include above all cotton grown under the Better Cotton Initiative, ECI, the initiative which works to improve social, economic as well as environmental aspects of traditional cotton circulating. But more sustainable sources also include organic as well as recycled cotton. H and M is the 1st fashion brand in the world to offer customers the opportunity to hand in old clothes for recycling. We offer this garment collection initiative in selected stores in all our markets worldwide. Further ahead, garment collecting will be expanded to more H&A students.
To learn more about our extensive sustainability work, please visit hm.com where you can read and download the H&M Sustainability Review. And before we start the Q and A session, a few comments to summarize. H and M is in a strong position, and we are making significant long term investments in order to ensure sustainable development and have continued strong expansion with around 3 50 stores new stores net and with 5 new more markets into 2013 and preparations to open in Australia in 2014. We're also continuing our long term work within IT, online and other stores as well as to broaden our product range with, for example, the new H and M support concept already in the beginning of next year. H&M is, in other words, well positioned for many more years of continued, sustainable and successful growth.
And now we're happy to take your
questions. Thank you.
Our first question comes from the line of Jamie Pearlman. Please go ahead with your question. Good morning. Thanks very much. I was wondering we could talk about China a bit, given that you say it's the number one for your store expansion.
When I look at the sort of sales development in China, it looks as though the volume per store must be below your average. And I was just wondering if you could talk about that, what you're seeing and how you're looking to develop?
Yes, that's true. It's not a secret that sales count is here in China. It's lower than the other markets. But at the same time, we see that it's growing very fast. And as you also what you see is also a reflection of the fact that we are expanding very quickly also not just in 1st years but also in 2nd, 3rd and 4th year.
Okay. And so you expect the sales density to get better as you can reach the end? Is that sort of the call or
Well, over time, as we see that the economy in China is growing very rapidly, absolutely we expect that sales density will pick up.
Our next question comes from the line of Richard Chamberlain. Please go ahead with your question.
Yes. Thanks. Good afternoon, everybody. So one question, please. Just on the additional store openings planned for this year.
Well, I guess, I mean, why can you say why you've chosen to accelerate the store expansion? And also maybe just give a little bit of color about where you're doing now, presumably it's China and the U. S. So I wondered, are you getting now more attractive rental terms in those markets?
Yes, ramping up the expansion, I think it shows that we are a strong brand and also in tough economical environment, it opens up a lot of new opportunities. And this is a proof of that even though the macro environment is up here, always other opportunities that a strong retail with a strong brand and the finances to long term can take advance of.
Okay. So most of the additional 25 stores located in China and the U. S?
They are spread around, but of course, I don't have the exact figure branching also that the China and U. S. Will probably have more than the main markets in Europe. They are in different markets.
Right. Okay. Thanks very much.
I think it comes from the line of Simon
Meeder. Actually just one follow-up question there. In terms
of the additional stores that
are going down, are they mostly H and M brand or
is this the brands that we're seeing being accelerated?
It's mostly H and M brands.
Okay. Great. And if that's okay to return to my core question, which was regarding at the year end within the intangibles, you disclosed an amount under classified expenditures, which I believe you mentioned related to website development costs. I just wonder if there's
been any further additions to that balance in
the last quarter. Just around €200,000,000
A couple of €100,000,000 Okay, fantastic. Thank you.
Our next question comes from the line of Alex Bass. Please go ahead with your question.
Good afternoon, everyone. Just on your announcement today with regards to Beyonce.
What is the biggest pace that you've these printers, I think, in the history of
that very best and how
much is your own pace for this?
Sorry. I didn't get to you first. Was the biggest what? The biggest star? The biggest Yeah.
The biggest space. The biggest star. Sorry. The line was very bad. I didn't repeat the last point.
You asked how much we pay in the course between her and us.
Our next question comes from the line of Simon Irwin. Please go ahead.
Hey, gentlemen. Could you just talk specifically about the FX effect on buying at the moment? Because you talked about the overall impact of cotton buying, etcetera, has been broadly flat. But certainly, according to my kind of former understanding of the way you bought and hedged, the FX impact, it's in itself, ought to be quite negative. So I'm just wondering if you could kind of
add some color to that? Yes, that's correct. On For the Q1, the U. S. Dollar effect was negative and it will still be negative for the
purchases we've done for Q2, but not as much as for Q1.
But I also want to say that this is very theoretical model based on a 6 time lead time and of course we have lead times in weeks and some lead times
are even longer than 6 months from.
This is not an exact truth, more a theoretical thinking. Right. But it's
still negative. So where are you picking up? If you try to look at purely on a theoretical 6 month basis, it's double digit amount, isn't it? So they're obviously picking up some fairly significant buying gains in other areas. Absolutely.
And as always, there are lots of different factors in the equation. And so the overall effect is more or less neutral as we say. So yes, there are some other reasons to go in the other direction such as we still have seen positive effects on cotton prices, etcetera. Okay. Just looking into 2Q, I mean, I think at the year end, you guided us to you're expecting to see a flat markdown 1Q on 1Q and obviously worse than that.
Do you have any similar thoughts for 2Q?
Coming back to what we've seen in connection with the Q4 press conference telecoms, that was our estimate to go flat on the markdowns compared to Q1 2012. But we also added here in the conference call that, that will be dependent of the sales development in February and development in February was wasn't the increase wasn't as high as we have planned. So therefore, the market levels increased compared to last year. And your second question for the Q2, it's still over 2 months of this quarter still, so we have to come back to that. But of course, if this case is not meeting our own expectations and we see that market development in our main so So, and then of course it will cause reductions for all players in the market.
The calendar effect for March in particular? It's a negative calendar effect, but we have the Easter, which is very, very difficult to calculate. So I can't give you an exact number. But Easter is very difficult. That's why again, you have Easter, you have holidays in calendar and you have the weather impact in the spring.
And that's why just look at the monthly developments, it's very volatile. And here you can see that if you go back in our historical figures. So you should see the development over the season. So I would say March, April and May together is the best of
Our next question comes from the line of Fraser Ramsden, Chickade with
quarter or 2 or more, do you think you've really invested enough
in your offer? I mean it's intriguing that
you've gained all these purchasing related gains before currency impact. But certainly, that's not gone back into the offer. I'm not sure if I'm having the same opinion because looking back for 2012, increased this and over by 11% and in like for like figures plus 1%. Of course, we're always aiming for better. We are never happy.
But we have to look at the circumstances and we clearly saw that we are taking gaining market shares during the last year. And so I think that we have got the payoff. But as you just recently said, we should look over a season Of course, Q1 is really, really in the season break. So it can just steering at one isolated quarter, I don't think that's always the best thing. I think you should look into, yes, hard shaker made together.
But I think we have a strong customer offering and we are regularly doing customers a day and we see our offering today is stronger than it was 1 year ago. So I think we had got to pay off those investments we've done. But you said your investments are long term, so
it's not just even. Is it are we going
to see even more going forward and so we can't really expect any improvement for some time in the margin dynamics of the business. I think we always are looking for H and M in the long term and exactly how that will be in different quarters. Of course, also dependent on what the competitors are doing. Of course, the apology, the development in the different markets where we are. I also think that it's probably we really want to speak to our business idea of having fashion and quality to the best price.
I would say it might
be easy to spot the increased prices. The go down quality will take a while before the customers will notice that. I think that's smart in the long term. So we will stick to our business. And are you at the best price only because there's lots of discount competition out there now?
Yes. We are looking at when we are looking at the whole combination, when looking it's the combination of fashion, quality and price, combining those three components and we have the best price. Yes. And I can see your opinion on it. Thanks very much.
Our next question comes from the line of Charlie Nurse Sanders. Please go ahead with your question.
Hi. Good afternoon, guys. I had three questions, if I can. First, just on the gross margin guidance, Simon's question. I wondered if you could just comment on the outlook for Q2 purely overall for external factors.
I think On the last call that for Q1, they were broadly neutral. What are your thoughts on Q2?
Yes. Same message that's again the external factors, more or less neutral for Q2. However, again, that's not the guidance for the gross margin. It's entirely how we choose to act and what we do with the customer offering, etcetera, and of course, the markdown.
Yes, of course. And then the second question on costs. Well, firstly, within that, what was the effect on cost of lacking the lease day? Did you expect to be have very little extra cost for it is paid on cost or is it very similar year on year and having an extra day year last year? I wouldn't say it's a dramatic thing because if you're looking
at the cost, of course, if
you have a fixed rent, then the rent is still running compared to last year when we had 29 days, then we gained 1 more selling day. If we have a 2 turnover, the rent of course will not then have a positive effect. So but there are no major indication on the cost just for the one day lead there is more the turnover to calculate it to be like a bit slightly more than 3% if you're in February. Yes. Maybe even that.
Sure. So the slightly slower OpEx growth in the Q1, is that just a timing effect? Or when you think about your multiyear investment side, are we at the point of inflection of that investment growth versus sales growth? When it comes to our long term investments, we have said in Q4 that the investments could be on a higher level in 2013 than they were in 2012. I wouldn't say there's nothing dramatically and they might differ a little bit from quarter to quarter.
But I think just by looking at the just go back 3 or 4 quarters and looking at the local currency development within OpEx, then you probably will see that there are no major fluctuations. So they will be on a higher level, but we don't see any dramatic now. They will continue during 2019. 16. And as I just previously said, I think we have the financial strength and the long term thinking that even in a tough environment, we
will continue to work with these long term investments.
And sorry, and my final question, just hogging the line. You've hit on and other stories that the reception has been so clear that you're planning on now expanding more widely and faster than originally planned. You've only had these stores and only some of them open for a handful of weeks. What gives you conviction that after such limited periods, you really can roll this out in a material way at group level?
You're right. It's a very short time, obviously, and we didn't say it. We said it opens up opportunities for us. I mean, if this continues, of course, it's likely that we could speed up the expansion and also broaden it so we can open in malls, etcetera. But clearly, we believe very much in the offering.
But we always notice before you launch something, we saw this tremendous reception. We really got we see that as a very clear receipt. And also on online, it's been a very, very good reception. And
as O'Neill said, yes, I fully agree. It's a short time we have seen it. But we have been able to also look at how it was taken cost, which is very, very good today. And we opened up the Costa Region 3. Now we opened up other stores on Region 3.
We opened up Costa in there, getting Copenhagen. We opened up another store. So we have a good comparison. So but of course, it's too early. As Neil said, we've opened up the
planned. So this year we stick to the approximate 10 stores. Yes. That's right. Thank you.
My first question is on inventory. So I was a bit surprised to say inventory was higher than planned, yet inventory is up 14% on a constant currency, store growth is on 13%. Has anything changed on for you wanting to plan for positive like for like? Because if you do, then the math would work as inventory is at the right level, isn't it?
Yes. As we said, we have to remember it's a snapshot of a certain time and but our own judgment is that the inventory level is on a higher level than we've done. So production dramatically when it comes to the and the competition is almost in the level of so. We have planned for a lower rate for this period and the reason for
Okay. So I guess the composition is a little bit worse than you had expected, but nothing dramatic. Then my second question then will be on that new concept that you'll be developing. So this course concept, in your mind, is it going to have kind of the same expansion, the same growth opportunity as in other stories?
Or in other words, are you
going to make a similar investment in order to develop that as you did with another story? So are you going to be less or more?
First of all, this is different from another story because other stories is a completely separate fashion chain. Sports is a concept within the H&M brand. Right. And, of course, we never ruled out we should have separate stores. Initially, And invested substantially in this development already and we continue to do so.
But it's difficult to compare with the other stores, and in the future, we'll tell how big it will be, but we see very interesting potential. John,
you're not employing more buyers, for example. Is that the existing infrastructure of H and M?
We are absolutely employing a lot of experts and expertise and buyers and employees and designers, etcetera. This is really a big thing.
Okay. And since I'm holding the line, a very quick one. You see if you answer that. I've seen that another store is quite more in higher end than H and M And the prices are quite different, even a bit higher than cost. Maybe I'm wrong there.
The margin differential that you expect to have on the other stores, is it much more than courses or kind of similar level given the higher quality?
First of all, I would say that from the price segment, yes, it's a higher price segment than H and M due to the cost. But it starts you can find things for the kind of €7 to start with and it expands up to €250 or €300 So there's a wider price range compared to H and M and costs. And second, sorry, you talked about higher
The margin differential, yes.
The similarity between brands is that you always get very much for, you can very much fashion and quality for the money also at site.
So a similar group margin is a fair assumption in terms of the gross margin?
We I mean, long term, our growth target is to 10% to 15% new stores brand and we continue high profitability. But we don't comment the different margins for different brands for our countries.
Fair enough. No problem. Thank you, guys.
Our next question comes from the line of It's Anne Critchlow from Stockton. Was there any impact on the Q1 gross margin from lower initial price thing, so not just markdowns initially?
What do you mean lower initial price?
Essentially the markup, so the price that you started with. So just some ignoring markdowns and promotions, was there any impact from the Q1 gross margin from price?
Like you mean investment in customer offering as we discussed before. We talked a lot about investing in customer offering 1 or 2 years ago. And since then, we haven't talked so much about it because for competitive reasons, we don't want to give out too many reasons. For us, it's always about having the right balance between fashion, fashion, price. But this is an ongoing process and we're not looking on giving details, but there is no dramatic changes I would say.
Okay. Thank
you.
Our next question comes from the line of Baymar
This is Vic Mohan in for Omar. With respect to your supply chain, are
you happy with your current lead times right now? Or are you
trying to shorten the speed to market?
There is always a lot of work going on to improve processes and of course to be even quicker. We are quick here already today. But it's also about having the right lead time on the right products and having it in the right place. But there is things going on all the time, but again, nothing dramatic.
Duffy.
Just 2 sort of bigger picture thoughts. One is on the Internet opportunity and the other side of that coin, the risk of cannibalization of your bricks and mortar stores and possibly undermining the leverage on that brick and mortar investment with the success of your Internet. Have you guys weighed the balance there between Internet growth and square foot growth as
you enter new markets? And then a
follow on question about franchises, if you could, the Internet first.
Yes. This is, of course, becoming more and more important for the industry and for us. And that's why we are investing so much in rolling out online in all our stores, in all our markets. And of course, very excited about the launch in the U. S.
This summer. But we see it again as seamless or multi channel, that's the important thing. So by having bricks and mortar and online and really being able for the customers to go through the different channels in a
similar way that needs to go.
And we see that our big our extensive store park is a very good complement to online and vice versa, so to speak. And we don't see any cannibalism. We see that they complement each other when we have launched online in the existing countries where we have it.
So net gain in rep case for both venues?
I think that the future is going more and more to giving the customers more and more touching points. It's mobile, it's iPad, it's laptop, it's a bit more so I think it's a complement that we have. And of course, you know, in the really long term, 15 years, 20 years also happened with the physical stores that we see it now. I think that this will gain a positive effect for retailers in general and especially for strong brands at C&M to be able to offer more and more touch points for the customers. So we don't see this as taking away anything from the future growth or vice versa side.
They complement each other on a really good way. Excellent. Thank you.
And the franchise opportunity, is that a component that you could see accelerating? Obviously, it's an easy entry into
more countries perhaps that you
might find more difficult to enter and also means to accelerate growth as well?
Russ, the preferred path is always to do it ourselves organically within H and M. But you're right, in certain countries where it's more difficult or where we by law not allow our own H and M stores, yes, we're open for franchise. But so far, it's limited to the Middle East and Southeast of Asia.
Two questions, please. Firstly, in terms of operating costs, could you help us out with the currency impact on OpEx growth in the quarter? Yes. The increase in Q1 in Swedish count was 4%, in local currencies it was 8%, so 4% of units have a difference. That's correct.
And second, in light of your increased store growth targets for the year, can you update your CapEx, your premium expenditure guidance, please?
Same as I said before.
Yes, as Neil said in the introduction that the CapEx that we came out with as an estimate of year, it was between SEK7000000000 and SEK7.5000000. But now it's leaning more to the DKK7.5 billion. But one have to remember still that a lot of those contracts is still not negotiated. So this is a moving target. So and of course, we will give you new updates in the coming quarters if there will be some changes.
Sorry, great. Our
next question comes from the line of Stefan Al. Please go ahead Our next question
comes from the line of Stefan Al. Please go ahead with your question. Yes. Thank you very much for taking
my question. Just I'm surprised by the kind of very large negative plants, a lot of the
questions, especially the green cut that you
can use, knife, but so thick. What's going on,
I guess, having a sort of a pet sort of question. On the OpEx,
my question is, like the sales as a percentage, does this quarter mark a turn? As we know, you've been investing a lot in OpEx for the long term for IT for online and the U. S. E commerce launch will finally happen. Are we going to
see as a percentage of
sales, these OpEx costs be more like the Q1 sort of going forward in the year? So in absolute amount,
you think you're going to
be up. But in percentage of sales, the opportunity is in terms of the activity will go down. And then my second question is, you introduced mobile applications. Do you see a potential for acceleration of the online sales from basically these more touch points that you mentioned. And we see that in many other businesses where multichannel, especially mobile, is really getting very high growth
in terms of users, especially young users? The first question is, the outfit for the champions of sales. We prefer not to I think it's so dependent on the performance during the quarter. I think it's more relevant to the year on year change between the Q1 this year and the Q1 last year. And because if we have a strong top line, this percentage of sales will of course look better when we have a little bit weaker supply.
So as I said earlier in this conference call, I don't see any really dramatic things when it comes to OpEx development. We have a really good cost control for our operations. And this long term investment they will continue during the year. I would maybe suggest to look at the development during yes, just go back 1 year to Q1, 2012. I think it has been quite stable, the overall development year to year when looking at different quarters.
We have to look at local currency because
What's like that question is, you obviously had a relatively poor q1 and sort of sales relative to what you expected. And if you
were able to basically improve by 50 basis points versus kind of what the market thought in
this core sales quarter, it means you have some more flexibility in your costs than we've been talking to.
Yes. I'm not sure if I of course, it didn't meet up to our own plans when it comes to the same spot there. I think, of course, when we are doing local currency 6% in a quarter, of course, the share of sales we have been looking better if we have met our own expense in the top line. But as I said, I think this so volatile just looking and trying to estimate what the sales will mean when it comes to OpEx. I think it's more accurate to look at the year on year change.
And coming back to the touch point questions that you had, of course, I think all the retailers see that giving the customers the opportunity to look at the fashion, buy fashion from different touch points. I think it's good for the customers and it's good for the retailers. So I think that's the way more or less all major retailers are looking for the business. It's definitely not the negative one.
And yes, we see this is growing. Absolutely. The reception has been very good so far.
And you asked us to note some earlier about the damage to
that scheme. He said HN won't be profiting from the close And instead, have you donated to charity organizations and invested in recycling innovation? Exactly.
That's what we want. It will be given to charity and to research to how to recycle fibers. So we can close the loop. Is there
any question at that?
The next question comes from the line of Peter Hector. Please go ahead with your question.
Good afternoon. Actually, the colleague of Peter Hecker, Ricardo Magyaki. I just had one question, again on operating expenses. In Q1, this is lower increase of operating expenses in Q1, the result of a full bank of marketing costs? Thank you.
No, it's of course, the flexibility we have when looking at the operations we have and when we are facing a tough quarter, of course, we might add up the costs as much as possible, but we still are thinking long term. So just having one tough month or month or tough quarter, we don't start to take away activities from our activity time in the short term. It's more to add up to the operations in the stores that we can on a short term basis work with. So it's more reflecting that the top line was lower than we estimated. And accordingly, we adopted our cost to costume.
Okay. Thank you.
Our next question comes from the line of Richard
Just a couple of
follow ups from me, please. Just going back to this extended sports concept, how many markets is sportswear sold in at the moment, please?
At the moment, we have it in all markets, but the standard would initially be in 15 countries.
Okay. And presumably, it will be countries like Switzerland and Norway and so on a bit more sort of sporty in nature. Is that reasonable? And just another one on 2 of the other formats, monkey and weekdays. It sounds like you're expanding these internationally now.
And I just wondered whether we're seeing an acceleration in international expansion for these formats, whether you're sort of happy and now with their performance and you're able to accelerate their expansion internationally now?
It's correct that we are expanding for families in and some other countries. But we are not yet there to be in the long term. So we are not accelerating yet.
Okay. How are they performing in a market like Germany, for instance? How is that going?
Because a few years ago, they were a
year ago, they were quite a challenging start there.
No, they are doing okay. But as I said, we haven't we're still fine tuning and developing and we want to be absolutely sure before we really press the button to accelerate and that goes for all the markets.
Okay. So no real change then in the international expansion plans for those?
No, but we are expanding.
We're the senior markets, yes.
Looks like we're close. Yes, okay.
All right, thanks.
We have a follow-up question from the line of Simon Bowens. Please go ahead with your question.
Hello, just a couple more actually
if that's okay. Just following with the just a follow-up on this the sports concept. I'm just wondering, it sounds like I've seen existing stores. Is there any specific product inventories that will be replaced with the space that it's taking? And what work is
done to understand how that supports
our range fits alongside your existing customers? Costs? And then the second I will run product, there's another account unfortunately.
I'm sorry, I didn't get your first question.
Yes, the expanded part of the concept will be in selected store in approximately 15 different markets and it depends on the stores. Sometimes we take additional space, sometimes we have the space already, sometimes we are pushing concepts looking into the, for instance, a region just to find 1 store or 2 stores with the extended storage concept, picking out some other concepts, putting in neighboring stores. So it would have sometimes we will increase the store signatures, sometimes we will take off other concepts. So it will be in existing stores. So and of course in the online store as well in those markets where we launched the online sales.
Okay. That's fair. And then just to follow-up and to come back to cash flow expenditures. You've obviously been running and developing websites for a number of years now. So I'm just wondering if similar expenses that you've had in previous years, have
they also been capitalized and perhaps disclosed elsewhere? Or is this a change in
your account improvement? And then if so, what's driven the reason for that change? Yes.
If looking at the capitalized IT investments, which is one part of our long term investment, it's according to IIS accounting rules, when those kind of investments are coming into the development phase, then according to IASO Housing Rooms, they should be capitalized on what we expect to do last year and also continuing for that part during 2013. So nothing changed in our accounting rules or the treatment. It's just that you haven't had these kind of huge long term investments before.
Okay. It's highly surprising given that you have launched websites before, so I would thought they involved in development costs that would have been incurred in previous years, but sounds like that's not the case.
No, it was more updating of these websites that we did, I think it was 2 years ago with our online existing online stores. But these are IT systems and we have done this for years, but in the beginning there were more on our planning phase and when they enter into the development phase, they've done the IS accounting rules got states that they should be able to apply. So, Good afternoon or evening, whichever it is now. Two questions, if you can, really. First of all, you mentioned before about not just the U.
S. Online launch, you were trying to accelerate the other countries as well. I just wanted to confirm that was still ongoing as planned. And then secondly, on the sort of OpEx investment, is it right to look at it as you have a couple of years where they've set up and then they'll annualize at these rates? Or are some of these investments and the Andava story to support that?
Is this a it's not quite a one off, but is it a 2 off sort of you're not just for a few years that will pay off afterwards? Or should we just use the increase of the sort of ongoing run rate?
Okay. If I take the first
one with global expansion of online, yes, of course, we continue. Of course, we can't give you a date for the next country yet, but we're working putting a of resources into this now. Of course, we want to have it out in the rest of the group
as well. And when it comes to these OpEx investments, of course, there are differences in the investment levels. For instance, the mobile option is a small example of that. Of course, when starting to develop this mobile adjusted site. So there are a lot of key investments in connection with that.
But then when we are ready with that space, then of course that goes away as an investment and then it starts to come more and more maintenance costs. So we have still these huge IT and online projects on hand. We are still looking to broaden the concepts within H&M. So I think I hope that we will continue to develop our business and be a stronger, stronger H and M in the future. But as I said, I think this is a normal way of doing business for a company of H&M to always look into the long term.
So as we're thinking about fixed sales in the medium term, is it fair to assume that the ratio improvement will come from the top line increasing rather than the OpEx necessarily decreasing once these investments are in place? Yes, all things equal, of course, just looking at an isolated part, for instance, if we have development cost for U. S. Launch of online and we don't get any revenues, of course, the ratio will totally be different when we start to sell online. So of course, the mechanism is behind it.
So that's correct that we have been invested. We will invest a lot and we haven't passed the revenues from many of these projects. I'm looking forward to switching them out as soon as they come through. Thanks a lot.
Our next question Our next question comes from the line of Paul Rossington. Please go ahead
and take your question. Good afternoon, gents. Just a quick question on the non HN brand sales. Can you give us any indication of what they actually represent as a portion of group revenues now? Just trying to work out how relevant these plans actually are in terms of putting our revenue forecast together.
They are
still on a very, represents a very small part of the total sales, of course, but we see great potential for them in the long term. Would less than 5% be accurate? I won't give any numbers because we don't skip out the different formats. But it's still I mean the vast majority of course is the core H and M and it's likely to remain that for many years. But we thought long term and we see great potential for each of the new formats.
Thank you.
Our next question comes from the line of Peter Farren. Please go ahead with your Just
a couple of questions from me. The first one is, I was wondering whether you had confirmed the U. S. Online launch for this summer. And the second one is on the sportswear offering.
Is it
Regarding I'm sorry, I lost
the The online launch for this summer.
The online launch will be in the U. S. This summer. We haven't taken a picture of the date yet, though, but it will be this summer. And then regarding the sportswear, it will be include sportswear and accessories in functional qualities with specific ranges for various activities.
But with how hard, I mean like tennis racket or golf or whatever. That includes footwear? No. Footwear as far as I know.
Okay. Okay. Fine. And and
it depends on the technical. Quality. Yeah. Okay. Thank you all very much for participating and opening your questions in this long conference call.
And welcome back for the 6 months results for