Thank you for standing by and welcome to the H&M 9 Wealth Report Conference Call. At this time, all participants are in a listen only mode. There will be I must advise you that this conference is being recorded today, Thursday 27th September 2012 at 1 p. M. U.
K. Time. I would now like to hand the conference over to your speaker today Mr. Neil Svinga. Please go ahead sir.
Thank you very much. Welcome to this telephone conference on the occasion of H&M's 9 month results. The presentation slides are found on our website hmdot com. Our CFO, Jyrki Tervanen is with me today and we'll be happy to answer your questions after the presentation. In the Q3, sales including VAT increased 10% in local currencies.
And in comparable units sales were unchanged. Looking at the 9 month period, sales including VAT increased by 11% in local currencies and were up by 2% in comparable units. So we increased sales and we keep taking market share despite continued tough conditions for fashion retail in many markets. We see this as a proof that H and M's strong offering with attractive collections is being appreciated by customers around the world. Sales were strong throughout most of the Q3 in June July.
August, however, did not live up to our expectations. This was mainly due to the heat wave that swept across many of our markets in August, primarily in Europe. We saw that weather dependent items such as heavy knit garments did not sell according to plan. As the weather has normalized, sales have improved nicely. Looking at current trading after the end of the Q3.
From the 1st to the 25th September sales increased by 14% in local currencies compared to the same period last year and calendar adjusted. Net sales in the 3rd quarter grew by 7% to SEK 28,800,000,000 The strengthening of the Swedish krona mainly against the euro, our biggest sales currency had a large negative impact on sales and results in SEK. Looking at sales in some of our markets, please turn to the slide sales per market. Germany is our largest market representing around 20% of group revenue. H and M sales have been good despite a slow clothing market.
Our strong sales development in the U. S. Has continued. Sales have increased by 27% in local currency so far this year. The U.
K. Sales have also been strong with an increase of 13%. We're also pleased to see Ireland with a sales growth of 18%. Our fast growth continues in China and Asia. We have 109 stores in China by now, 48 more than a year ago and we keep expanding.
Sales grew by 33% in China in the 1st 9 months of the year. In Japan, following a tough year last year, we're pleased to see that sales have developed well and we see great potential for H and M to continue growing in Japan. Sales development has been good also in our franchise markets. Going back to the Q3, please return to the slide Q3 of 2012. Gross profit increased to 16,800,000,000 corresponding to a gross margin of 58.2 percent compared to 58.6% last year.
As you know, the gross with our strategy to always have the best customer offering in each market. For the quarter, the relief in cotton prices had a neutral to positive effect on sourcing costs compared to the Q3 last year. This however was partly offset by cost inflation mainly in Asia and by a stronger U. S. Dollar.
Looking at markdowns in relation to sales, they were at the same level as last year and thus the effect on the gross margin was neutral. H and M's long term investments continue. These initiatives are aimed at broadening the group's total offering. One example is the new brand and other stores that will be launched next year and which I will come back to shortly. In the Q3, these investments made up a slightly larger portion of sales than in the Q2, mainly because Q3 is a smaller quarter turnover wise.
Over to operational costs. Cost control in the group remains good. SG and A was €12,000,000,000 in the quarter, up 8% in SEK and 11% in local currencies. The increase is explained mainly by the expansion. In comparable stores, SG and A was up marginally in the quarter, but on 9 months costs were down.
Operating margin was 16.7% compared to 17.5% in the Q3 of 2011. The strengthening of the Swedish krona against the euro hampered profit growth in the quarter. Profit after financial items was up marginally by €4,900,000,000 In the 9 month period though, profit after financial items grew 11% to more than €15,600,000,000 Net profit for the 3rd quarter was 3.6 €1,000,000,000 after an estimated tax rate of 26 percent and corresponding to earnings per share of DKK2.19. And now looking at some key figures. Please turn to the slide key data.
Stock in trade was 13.5 €1,000,000,000 an increase of 1% in SEK and 3% in local currencies compared to the same time year. The stock in trade is well composed and at a good level. As you can see on the curve on the next slide, stock in trade in relation to sales were 11.3%, which is a good level also seen over time. Back to the slide key data. Cash flow from current operations was €13,000,000,000 The main explanation for the increase is the growth in profit and the development of the stock and trade.
Investments in terms of CapEx reached close to SEK 4,300,000,000 mainly in blue stores over the 9 month period. Our finances remained strong. Liquid funds and short term investments amounted to €13,500,000,000 Now some words on our expansion. Please turn to the slide expansion in 2012. We added a net of 157 stores in the 1st 9 months of the year, of which 54 in the Q3.
The group had a total of 1,629 stores at the end of the period. And of these, 2,494 were H and M, 55 costs, 55 monthly, 21 weekday and 4 cheap Monday. Of the total, 78 are tenant. And we have been able to sign more store contracts than our original plan for the year. We are accelerating our expansion plan for 2012 to around 300 new stores net from previously announced 275.
We are growing in all our markets. China and the U. S. Are the largest expansion markets this year. We also see great opportunities for expansion in markets such as Russia, Italy, Poland and the U.
K. We're adding 5 new markets this year. 3 of them have already opened Bulgaria, Latvia and Malaysia. And H and M has been very well received by customers in all of them. Expansion continues in Southeast Asia.
On Saturday, Thailand will become a new franchise market. And later this year, we will open our 2nd store in Singapore after a successful start there last year. We also see tremendous customer demand and interest in the upcoming opening of the first H and M store in Mexico. It will be a fantastic store that will open in Mexico City's Centro Santa Fe later this year. Kos continues to do very well and is opening in 6 new markets only in this Italy, Finland, Poland, Hong Kong and Austria have already opened and customer response have been very positive everywhere.
And in October, costs will open via franchise in Kuwait. If we take a look at next year, please turn to the slide expansion 2013. We're looking forward very much to the opening of the very first M store in South America in Chile. It will be our first store in the Southern Hemisphere. It will be a flagship store and it will open at best location in Santiago to Chile in the Costa Nera center in the first half of twenty thirteen.
Next autumn, we will open our first stores in Estonia and Lithuania. And in Southeast Asia, Indonesia will become a new franchise market. Expansion continues for our other brands as well. Kos has signed for its first store in Norway to open in Oslo in the spring of 2013. Both Monkey and Weekday will open in Japan in the spring of 2013.
And MONKEY will enter France with a store in Paris. In 2013, we will also offer our customers a completely new and very exciting brand and other stores. To give you a bit of flavor, please turn to the next slide. And Other Stores will be a great complement to H and M and the other brands in the group. It will be launched in separate stores and online in selected European markets in the spring.
And Other Stories is aimed at women who love fashion and who want to create their own personal style. The brand focuses on the entire look and other stores will offer a broad range of shoes, bags, jewelry, beauty products, lingerie and clothes in a wide span of prices in a higher price segment. This allows for carefully selected qualities and great attention to details. And just like for all brands in H and M Group and other stores, we'll offer the best price for comparable products. We believe strongly in this new brand and are looking very much forward to offering it to customers.
Please turn to the next slide. We see significant opportunities for continued growth for the H and M Group for both in stores and online. In tandem with our expansion, we strive to offer our customers the best shopping experience at all times. That includes the development of multichannel. H and M Com is one of the world's most frequently visited fashion sites and our web shop is top rated by customers and e commerce service.
Online is becoming increasingly important for fashion retail and market growth is particularly strong for shopping via smartphones and tablets. To cater the growing demand for mobile shopping, our HEM shop online we've also intensifying work to roll out online shopping to more markets in the group. 2013. We do this because we of 2013. We do this because we believe it's what is best for H and M in total and for our continued successful expansion long term.
Before we start the Q and A session, a few comments to summarize. So far this year, we've increased profit by 11% to more than €15,600,000,000 Despite tough market conditions and despite the fact that we in the current environment are also ramping up our expansion, continuing our work for of making the customer offering even stronger and investing for the future with many new initiatives. H and M has grown to become one of the world's strongest brands with a business concept and a model that works across 4 continents and in small as well as big cities. Today, we have more than 2,600 stores in 46 markets. And the way we see it, we are only at the beginning of our journey.
We are now happy to take your questions.
Your first question comes from Anne Critchlow. Please announce your company and ask your question.
Good morning. It's Anne Critchlow from SocGen. Good morning. Hi. Sorry, afternoon.
I've got a question about the country data. In China and Russia, it seems that space is growing well above your total local currency sales growth. I just wondered how you could explain that please?
Yes. I mean it's always a matter of timing etcetera and the size of stores etcetera. So it does not correspond to the development in like for like stores.
Okay. So can you say that like for like sales growth is positive in those countries or at least no worse than the average?
I mean no, no, no. Again, when you look at just looking at the sales development and number of stores development, you can't make those kind of conclusions, there's so many as I said, it depends on timing. For example, if we opened a lot of stores the last day of the quarter, you get very tilted figures.
Okay. Thanks. And then just one more question about the tax rate. I imagine you're expecting your tax rate to drop next year to 22%. Can you confirm that?
Are you prepared to give guidance at this stage?
Yes. It's still just a government bill. So we have to wait to see the final decision in the Swedish Parliament. And then we have to come back when that decision is done.
Okay. Thanks very much.
Your next question comes from Jorg Nowicki. Please announce your company and ask your question.
Good afternoon. My name is Jorg Nowicki from Textilevich, I have two things. First of all, can you give us an idea about how important the online business is for H and M at the moment, like maybe percentage wise? That's the first one.
Yes. Thank you for asking. I think we had this question before. It is growing and becoming more and more important in general and also for H and M. And thus the investments we do and the ramp up we do and that we talk so much about it.
But for competitive reasons, I'm sorry, we prefer not to break out the percentage of the different channels.
Okay. Second one, you were talking about and other stories and you were talking about the prices. So that means that H and M and other stores will be more upscale than H and M. Can you give us any idea about the pricing?
It's correct that the prices it's in higher prices segments than compared to H and M. And it's a wide range of prices. But you could very simplify and say that they start where H and M ends.
Okay. Okay. All right. And you will also launch this in Germany. Is that correct next year in spring?
Yes.
This is the
final year. We've said that we aim for 8 to 10 stores 1st year in major cities in Europe. Perhaps some in Germany, but we haven't said that yet. We will see.
And it will be mostly about accessories like accessories will take them will have a much stronger part than in the H and M stores?
It's true that there will be a lot of accessories, but also fashion and apparel will be very important. So it's been it will be very nice and exciting. And you would see when you see it, you will understand how exciting this is.
Okay, okay. All right. Thank you.
Your next question comes from Richard Chamberlain. Please announce your company and ask your question.
Hi, Richard.
Hi, Neil. Sorry. I didn't hear that last bit. Hi. Yes, 2 from me please.
First of all, what was the calendar adjustment on the September sales number that you talk about? Was that significant?
Yes. We tried to help the market a little bit. So if you just look at the 1st 25 days, there is a calendar effect. And we try to adjust for that and it's approximately 2 percentage points.
2 percentage points positive?
Well, so we give you 14% which is adjusted. Otherwise, it would have been 12%.
Yes. Okay. Thanks. And then the other one, can you just talk about the kind of strategic thinking behind, first of all, ramping up the store growth, obviously, with the growth of online sales being so strong. What's the thinking behind that?
And at the same time delaying the U. S. Online launch until the summer of next year please?
Well, they are not correlated at all. But for the expansion the revised expansion target for the stores, it seems that entering a new year there is we gave you guidance and we said 275. In some years it will it gets more than that and sometimes moving target. A lot of stores that we still haven't negotiated etcetera and things may change during the year. But we see that the brand of H and M is becoming stronger and stronger.
We attract more and more customers. So we become a more and more interesting tenant, which of course helps us.
Right. So you're getting more approaches from landlords presumably and better rental terms, I would call as well.
The team the expansion team we have the teams we have are very good and they've done a great job. So it's a combination of these things. That has nothing to do with the online issues that we talked about before.
Okay. So okay, thanks. So the online issues is that still getting the logistics organized and fully operational in the U. S? Is that the main reason for the delay?
Or is it a number of different things?
No. As I said, it's a number of things. It's a combination of first of all, yes, the adaptions in the U. S. To the U.
S. Shopper line has been taking longer time than anticipated. That's one thing. But at the same time, as I mentioned, we see that obviously online is growing very fast, very quickly, especially thanks to the fast growth of smartphones and iPads, etcetera. That's why we've intensified the work to launch.
And already in the beginning of next year, we will launch this fully adapted m is it e commerce platform
m commerce software, yes.
Already in the 8 existing markets, very exciting. At the same time, we also have allocated more resources for the rollout of H and M Shop Online in the rest of the world. So hopefully
Right. Okay.
In all the create more customer value after the decisions we are taking. Unfortunately, the U. S. Customers will have to wait another until the summer. But as we said, we think that the total value of this will be greater.
Sure. Yes. Okay. All right. Thanks very much.
Your next question comes from Jamie Merriman. Please announce your company and ask your question.
Good afternoon. It's Jamie Merriman from Sanford Bernstein.
Good afternoon.
My question is about the gross margin. And in particular, I know that there are a lot of factors like you said internal and external. But I was wondering if you could give us some idea about the magnitude of the internal versus the external factors in the quarter? And maybe also what you're seeing in terms of price both on a like for like basis and on a mix basis?
Yes. It's correct. As you mentioned that it's both internal and external factors affecting the gross margin. And simplified, you could divide the factors. Of course, the external factors, it's all about cotton, the wage inflation, the transportation, the capacity and also for us the euro U.
S. Dollar relation. And then we have the internal factors. And they as we are having an income statement by function, we include also a lot of other things in the cost of goods sold, not only the FOB price for the goods. And as we said in the report, we are doing long term investments.
And these long term investments in the sourcing organization, the buying office organization, in the logistics, they are affecting the cost of goods sold and also accordingly the gross margin. But most important is the decisions that we take when it comes to our customer offering. And as we have said before, that's always the starting point to look into that we have the best customer offering on each market. But we prefer not to go exactly and give a magnitude of each factor. But I think it's really important to understand that the cost of goods sold is including much more factors than only the FO buy prices.
And also to really be clear that the gross margin will be a result of the decisions both when it comes to the decisions we are taking in the customer offering, but also the long term investments. So reflecting those, we can say that the gross margin for the Q3 this year is more or less in the range that we planned.
Okay. And on the pricing, have you seen I understand that you said you cut markdowns the same, but in terms of like for like pricing or was there a mix shift towards lower priced products within the quarter?
No. We don't comment exactly on our pricing strategy for competitive reasons. But again, our target is always to have the best customer offering and that's a combination of price, fashion and quality. Sorry.
Okay. Thank you.
Your next question comes from Fraser Ramsden. Please announce your company and ask your question.
Hi. It's Fraser Ramsden from Nomura in London. Just a question about the gross margin. There were some comments on Bloomberg earlier from Mr. Person suggesting that in the Q4 currency and input cost factors will broadly offset each other.
So presumably what you mean by that is the external factors should be broadly neutral in the Q4. I just wanted to confirm I had understood that comment.
Yes. That's correct. But looking into the cotton, the capacity, wages, inflation, transportation and the currency U. S. Dollar and euro mainly.
So theoretically quarter. But it's too simplified because it's really based on street prices and the reality is somewhat some more complicated.
Okay. So internal factors would be in addition to that I. E. Incrementally negative in the Q4?
No. What we say is looking at those 5 external factors, we estimate looking at the spot prices, etcetera, that it should be fairly neutral. But then if it's when talking about the gross margin for the Q4 that will be dependent on our decisions, what we will make for decisions when it comes to our customer offering that will be then the most important thing.
Okay. Understood. And then one other question if I may. Just really coming expect subject to implementation in Swedish Parliament, you would expect the tax rate to drop to 22%? Or would it likely be some smaller number given that not all of your taxable profits are in Sweden?
Sorry some larger number?
Yes. You mean the tax for the whole group Yes. It's almost probably not the exact 22%, because as you said, we also have taxation in other countries with different we are acting in almost excluding the franchise countries. So over 30 countries with different tax rates. So of course they will also influence the group tax Okay.
Thank you very much.
Your next question comes from Simon Irwin. Please announce your company and ask your question.
Hello. It's Simon Irwin from Credit Suisse. Could I just go back to the gross margin issue and particularly the influence of FX because it's quite difficult for us to work out the lag in terms of the FX. Is it fair to say that the negative headwind that you see in terms of sourcing on FX is worse in 4Q and will be worse again in or pretty similar in 1Q from what you can currently see. But you are obviously offsetting that with better dollar buying terms.
Is that correct?
Yes. That's pretty much correct.
Okay. And just in terms of the online launches, you've only launched one market since 2007. You appear to be inferring that there will be an acceleration in online launches once you've got this new platform up and running in the U. S. What are you going to do differently that allows a more rapid rollout of online capability going forwards?
First of all, we just said that we have allocated more resources, which is number 1 in order to have it happen and make it happen faster. But of course learning from history, we are reluctant to give you an exact date of course.
Right. But is there going to be a different structure? I mean is there going to be are you going to be able to say provide e commerce from one center to a larger number of countries particularly? I'm thinking of Southern Europe or France and Southern Europe rather than having to put facilities in each market or just in terms of the infrastructure and the way you organize yourselves?
Well, before going into details, I mean, we all agree that there is a huge opportunity for us in front of us when it comes to online shopping and e commerce and all of it. But exactly how it will look we will come back to. But I mean there is no secret that we are investing a lot in this and we look really forward to have it in all our markets.
Okay. And just in terms of the impact of and other stories, I think you have flagged already an increase in OpEx this year as you move towards the launch. Should we think about some additional cost beyond what you're putting through this year into next as you go live with this brand?
Always when we are starting up a new market or a new brand, it's connected in the initial phase. Of course, there will be investments. And but these are really important investments we have to do to be able to be even stronger in the future. So of course, going like we have been doing the past 2 years, we have entered 10 new markets. And for sure, it's much more expensive to open one store in a new market than in an existing market.
So there will be initially investments and costs connected to new brands, new markets.
Fine. Thank you very much.
Your next question comes from Chris Taviaras. Please announce your company and ask your question.
Good afternoon, guys. Chris Ramirez from Barclays here. I do have hello. Two questions for me, one after the other. So the first one on the online, will there going to be any extra costs associated with that or with intensification of your efforts on launching in more countries this year and next?
Or the investment has been pretty much done? That is my first question.
Yes. There will be investments when ramping up the resources for rolling out the online on all our markets. So yes, there will be.
Right. And my second one actually then would be again on the on some longer term strategic initiatives you got. Will the since you are ramping up your space expansion, assuming that you are going to launch in the U. S. In summer as you've said and then rolling it towards more markets, would that affect the magnitude of your space expansion going forward?
Or this 10% to 15% store growth that you've been that you have given still holds?
We've had this question many times. And we should say again the answer is no. It does not affect our plans the way we see it. There is still a lot of potential to open new stores. So we feel very comfortable with a 10% to 15% target.
Of course, then in the very long term, it's something else. But I mean, still for many years to come, we feel comfortable with a 10% to 15%. And we think that online is a very good complement to physical stores.
Okay. Thank you. If you allow me a very technical question and the last one, sorry, I hadn't planned that. When did you start investing about the new concept and other stories? Because you mentioned that in the previous release, but when have you actually when did you actually actively start investing for that new concept in terms of the timing I'm trying to see in the quarters, if this is something that you can disclose?
It continuously invests a lot, not just in the philosophy figures, the CapEx figures. We take a lot of direct into P and L and those are long term. And we said in the beginning of this year, one example is this new store chain or brand online, the other stores. But we also have parallel to that a lot of other initiatives going on. It could be also extension of existing categories or new categories at H and M etcetera.
So exactly when we started with and other stores, I mean, it's difficult to say, but I
mean it
first with an idea and then it ramps up and a lot of things going on parallel.
Yes. And the cost and the investments then they come gradually. And of course, in the initial phase then it's more ideas discussions. And then if we will go further on those discussions then of course we start to build up an organization. And then so it's a gradually it's a process.
Okay. Okay. Thank you.
Your next question comes from Richard Edwards. Please announce your company and ask your question.
Yeah. Hi. It's Richard Edwards from Citigroup. Hi, there. Hi.
It was just going back to the space CapEx questions. The 300 stores you're planning to open this year, the pickup from 275, should we assume next year's 300 or more than 300 units that you're going to open? Or is this year's raise target really just taking some of next year's opening program into this year?
Let's come back to that in connection to the full year report. But now this is the best estimate for this year. Then we'll come back about 2013. But the long term target of 10% to 15% remains very intact.
Okay. And just on CapEx for this year, are you still looking at something around the SEK 6,000,000,000 mark?
Yeah. It might be above SEK 6,000,000,000 due to the ramping up of the expansion with 25 stores, etcetera. So it would most probably be over €6,000,000,000 maybe in the range of €6,000,000,000 to €6,500,000,000
Great. Thank you.
Your next question comes from Rebecca McFallon. Please announce your company and ask your question.
Yeah. Hi. Good afternoon. It's Rebecca at Santander. Just a couple of small questions.
Firstly, constant currency OpEx and inventory growth is possible please for the Q3?
Sorry again constant currency growth
of what? Of inventories
and of OpEx.
3%. 3%. And OpEx please?
11%. 11% in the Q3, yes.
Thank you. And then I've missed part of this call, I'm afraid. And did you you talked about the quarter external factors connecting to neutral for the gross margin. And you talked about the Q3 internal factors being in line with plan. Are your 4th quarter sort of plan for the internal factors similar to the Q3 or in terms of the range, I.
E. Should we expect a similar to 4th quarter gross margin outcome? Or what would you so how can you help us with that?
That's your job. We don't give you guidance. Sorry. The only thing we say you know what we say. It's always about having the best customer offering.
Okay. All right. Thank
you. Your next question comes from Richard Cathcart. Please announce your company and ask your question.
Hi. It's Richard Cathcart from Espirito Santo. Hi. Hi. I just wanted to ask a couple of questions about the move in to South America.
First of all, are there any particular reasons why you chose Chile first? Secondly, how quickly can you quantify the sorry?
Sorry, let's take one at a time. So I don't yes, of course, we are looking at many new markets in the Southern Hemisphere as well. And in Chile, we found very good location in combination with the fact that Chile as a country rates very high in ease of doing business index.
Okay. Great. And just for the rest of South America, are there any countries in particular that you're targeting? And would you try and create a kind of a mass of stores in Chile before moving into some of the other countries in the region? Or would you be prepared just to open individual stores as they come up?
No. As I said, we are looking at many different markets. But that's again going back to what I just said. The other most other countries in South America rates much further down in that index I was talking about.
Okay. And then actually that's it. Thanks very much.
Okay. Thank you.
Your next question comes from Nick Farm. Please announce your company and ask your question.
Entebbe and Skulda, good afternoon. Can I ask you in terms of FOB prices out of China at this stage when you're ordering stuff sorry goods, where would they be compared to a year ago?
Sorry, 1 year from Japan.
We prefer not to go into our FOB prices and that's what we want to keep to ourselves for competitive reasons.
But generally speaking in the market, are your prices down or are they still up year on year?
But Niklas, we try we give you the external factors. Then what we pay is another thing because that's up to us how we negotiate etcetera and how efficient we are and of course the mix of products and material fashion etcetera. So it's yes sorry.
A follow-up question. I've asked you about a year ago how you're proceeding with a potential switch to use the CNH, the convertible renminbi as your preferred means of payment as opposed to the U. S. Dollar in China? How is that project if there is any proceeding?
We are of course following the development closely, but we have nothing new concrete new to tell you at the moment. More than thanks for so expense.
Oh, really? Final question. On the cost side, I suppose you've definitely been taking a lot of ramp up costs for IT systems, etcetera. And in particular, I'm thinking about the SAP installation. How is that process progressing?
It's true that SAP is one of the different vendors and global and best suppliers we work with. And I would say it's going according to plan.
Okay. Thank you very much.
Your next question comes from Adam Cochrane. Please announce your company and ask your question.
Good afternoon. It's Adam Cochrane at UBS here.
Hi, Eli. Hi.
Two questions, harping back to the gross margin, I'm afraid. Firstly, in terms of the better than lower cost and prices year on year and your ability to negotiate with the factories etcetera. Q3 was maybe a little bit more disappointing than we thought. Is it really the that it takes longer to come through? Or has the gain actually been less than you or we originally anticipated?
Prices and think that they will go through at once.
Okay. So it is no different to what when you were buying the products 6 months ago, this is broadly as you expected it to be for the period?
Yes, absolutely. But again, we don't I mean, it's not that we have 6 month lead times or everything. I mean, in some cases, we have 2 weeks. So it's a mixture. And that's why the Excel models don't really work in reality always.
Hell, mine certainly not today. But
in terms of the sort of second question, it was really when we look at your long term investments, the sort of gross margin impact is really you've referred to as it's because it's a smaller proportion of sales within the quarter. So does that mean that the long term investment is pretty in absolute currency amounts is similar through each of the quarters? It just varies in terms of the impact on gross margin by the sales in that given quarter.
Yes. Looking at the absolute currency, it's more or less on the same level slightly higher in the Q1 compared to Q2, but not materially.
And is that in terms of year on year, is there much change is there a material change year on year in that investment?
Yes. The year on year, it's bigger than compared to Q2.
You're probably pushing it too far to ask for any kind of quantification though, isn't it?
Sorry. We Very bad
line now.
All right. Thanks for your help. Thanks.
Your next question comes from Jillian Hildich. Please announce your company and ask your question.
Hi, guys. This is Jillian Hildich from JPMorgan. I just wanted to ask in light of the CapEx creeping up slightly, do you think
we should be thinking about
a flat dividend year on year in terms of making sense when we're forecasting?
The dividend that's a question for the Board and finally for the Annual General Meeting.
Okay. Thank you.
Your next question comes from Jeff Riddell. Please announce your company and ask your
question. Hi. It's Jeff Ruddle from Morgan Stanley.
Hi, there.
Just a quick question about the Southern Hemisphere. I mean, obviously, the challenge or one of the big challenges of going into the Southern Hemisphere is having the seasons reversed and having to therefore have winter product in summer and vice versa. How are you getting around that? Are you have you established a completely separate design team? Or are the same individuals designing summer and winter products at the same time?
We have developed a very good solution. So meaning that the customers in the Southern Hemisphere will get the latest fashion as well as current season. Exactly how we do it, of course, we'll keep for ourselves.
But so but you are going to have separate you're going to have product that is only available in the Southern Hemisphere at that time of the year, is that right?
As I said, I mean, we will follow the seasons and those customers will be able to get latest trends as well as current season. And in some cases, it might be before you see it in the Northern Hemisphere, in some cases after.
Okay. That's
great. Thanks
very much.
Your next question is from Peter Farron. Please announce your company and ask your question.
Hello. Peter Farrin from Rangani. Hello. Hi there. Just three short ones from me.
The first one on the external factors. I just wanted to check-in Q3 that the external factors put together were neutral on the gross margin because reading your report it sounds like they were slightly positive.
Yes. They were slightly positive when looking at the aggregate for those 5% of factors.
Okay. Thank you. And the second one is, is there no risk of greater discounting over the next few months given the poor August figures? Or are you basically going to roll out some of that stock into autumn?
We're looking at our stock at the end of the Q3. We are very happy with the level and the composition of the stock. And when it comes to possible markdowns discounts in the Q4, it's starting to it's still over 2 months to go.
Yeah. Okay. And the final one, can you tell us what the size of the and other stores will be?
Yes. It would most probably start in the range of from 600 square meters up to also a little bit over 1,000 square meters. So it's a flexible concept.
Okay. Thank you.
Your next question comes from Fraser Ramsden. Please announce your company and ask your question.
Hi. Sorry just one quick follow-up. It's about your dividend policy. Could you just like you aim to distribute surplus liquidity. So what kind of factors would be important to
you in
determining surplus liquidity or not?
Yeah. That's correct. It's 50% as a base rule. But the surplus liquidity, it's also always that we have the financial strength to take possible opportunities. So we have the financial strength to act really quick.
So that's the whole idea.
Okay. Thank you very much. Your
next question comes from Paul Rossington. Please announce your company and ask your question.
Good afternoon. Paul Rossington, HSBC.
Good afternoon. Good afternoon.
Hi. Just on the SG and A line, I guess, really. I see that the final quarter is going to see a significant uplift in the number of new stores you're going to open. I'm sure you've got them all signed, but does that mean we're going to see kind of quite an acceleration in SG and A quite often that final quarter?
We have a really good cost control and we prefer not to give any forward looking statements when it comes to SG and A. But we have a good development during the year with sales during the 9 months increase in local currencies by 11% and the SG and E by 10%. And that's also including all the long term investments that we are doing. But we prefer not to go into and give any prognosis for the Q4.
I also like to remind you that part of the cost for these 25 additional stores are already taken in the Q3 because it's ramp up cost before.
Okay. And in that case perhaps a second question. Is the opening profile kind of the 1st 3 quarters of the year to date materially different from where you thought it would
be at the beginning of the year?
What do you mean opening profile? Sorry, could you
So I. E. The number of stores you've opened year to date in the 1st 9 months, is that broadly in plan with where you thought it would be?
Broadly in plan, maybe we have added
Yes, but that's yes, broadly. But as Neil said earlier, when entering a year, we it's really a moving target. So it's not that we exactly can say that will be the second quarter, 3rd quarter, Q4, but no major deviations to our plans.
Great. Thanks very much.
Your next question comes from Rebecca McClellan. Please announce your company and ask your question.
Hi, again. Two questions please. Firstly, what's your operating breakeven point in terms of like for like?
Sorry, we it's very difficult to give you an exact figure for that. But I mean, I think history has proven that we have been able to despite negative like for like sometimes we've increased efficiency. And but I mean the reason why we have a target always increase like for like sales is of course that there is always inflation when it comes to salaries and rents etcetera in the stores.
So maybe just marginally positive then?
Yes. But as Niel said, in the long term, of course, it's important that we have a like for like growth because there are an underlying inflation in the OpEx. So but the breaking point, I think in the long term, it has to be a positive like for like.
Okay. And secondly, can you just remind me where your cash is and how is it sort of within the European operating companies? Or is it all consolidated back in Sweden or?
Most of the cash is in SEK.
Okay. Thank you.
There are no further questions at this time sir. Please continue.
Okay. Thank you very much for participating in this conference call and welcome back for the full year results on the 30th January next year. Goodbye.
That does conclude our conference for today. Thank you for participating.