Good morning and good afternoon, ladies and gentlemen, and welcome to the H&M full-year report. At this time, all participants are in a listen-only mode until we conduct a question and answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press star and zero on your telephone. Just to remind you, this conference call is being recorded. I would now like to hand over to the Chairperson, Nils Vinge, Head of Investor Relations. Please begin your meeting, and I'll be standing by.
Welcome to this telephone conference on the occasion of H&M 's full-year results. The presentation slides are found on our website, hm.com. Our CFO, Jyrki Tervonen, is with me today, and we will be happy to answer your questions after the presentation. Before we start with the fourth quarter, we are pleased to see that the new year has started well. In December, sales increased 13% in local currencies, and in comparable units, sales were up 4%. From the 1st to the 24th of January, sales increased by 12% compared to the same period last year. Our early spring collections have been well received, and our customers appreciate our strong offering. Please turn to the slide fourth quarter, 2011. Conditions were challenging for the retail sector in the fourth quarter, with consumer sentiment affected by economic worries in many of our markets.
In addition, the weather was unusually warm throughout the autumn. Despite all this, we increased sales, including VAT, by 6% in local currencies, and we continued taking market share. Sales in comparable units decreased 3% against a high like-for-like of plus 7% in the fourth quarter last year. Net sales were at SEK 31 billion compared to SEK 29.7 billion last year. Gross profit for the quarter was SEK 19.2 billion, corresponding to a gross margin of 61.9%, down from 63.2% last year, but still at a good level. The main explanation for the decrease is the high sourcing cost inflation, particularly the increase in cotton prices, combined with our chosen strategy to further strengthen the customer offering and the market position relative to competitors. We are convinced that this will gradually become even more evident to our customers.
Just to illustrate, if you please turn to the chart cotton prices for a moment. At the time of sourcing for the fourth quarter of 2011, cotton spot prices were at historically high levels, around $2 per pound. Spot prices peaked in the spring of 2011, but they remained higher than the year before, all the way until the autumn. Now, please return to the slide fourth quarter, 2011. The unusually warm autumn led to increased markdowns on weather-related garments. Therefore, markdowns in relation to sales increased compared to Q4 2010. The effect on the gross margin was 60 basis points negative year-on-year. The negative effects on the gross margin were partly offset by a positive effect from the weaker dollar against the euro during the time of sourcing for the fourth quarter, compared to the corresponding period the previous year.
Looking at OpEx, we kept our strong control on costs across the group. Costs in comparable stores decreased compared to the fourth quarter 2010. SG&A was SEK 12.5 billion in the quarter, up 6% in SEK and 8% in local currencies. The increase explained mainly by the expansion and by continued long-term investments, primarily in IT and online. The operating margin was 21.5%, and net financial items totaled SEK 137 million compared to SEK 118 million. Profit after financial items was SEK 6.8 billion compared to SEK 7.2 billion a year ago. Tax was lower than last year, mainly due to adjustments from previous years. Estimated tax rate for the group for 2012 is between 25% and 26%. Net profit was SEK 5.4 billion, corresponding to earnings per share of SEK 3.24. Looking at the full year, please turn to the slide full-year 2011.
Sales including VAT increased 8% in local currencies. Sales in comparable units decreased by 1%. Converted to SEK, net sales amounted to SEK 110 billion. Gross profit was SEK 66.1 billion, corresponding to a gross margin of 60.1% against 62.9% the year before. SG&A were SEK 45.8 billion compared to SEK 43.6 billion. Above all, related to the store expansion, but also to our investments in marketing, IT, and online, in order to further strengthen H&M's position in the long term and to secure future expansion. Operating margin was 18.5%, and net financial items amounted to SEK 563 million, and profit after financial items was SEK 20.9 billion compared to SEK 25 billion in 2010. After a tax rate of 24.5%, net profit was SEK 15.8 billion. That corresponds to earnings per share of SEK 9.56 compared to SEK 11.29.
Now, some words on our markets and their sales in 2011. Please turn to the slide sales per market. Germany is still by far the largest market for H&M, with around 23% of the revenue. Sales today are spread across more markets than ever. We are growing in all our markets, and we see great potential for further growth in all of them. The U.S., France, and the U.K. compete for a second place in the group, and the U.S. and the U.K. were among our best-selling markets in 2011, with increases of around 20% each in local currencies. China is where we expand the fastest, and we have more than 80 stores already. Russia, too, is performing very well. We have 19 stores and sales of more than SEK 1.5 billion already last year, and our rapid expansion continues.
We have 70 stores operated via franchise today, and sales develop well. Please turn to the slide expansion 2011. We opened 266 stores net in 2011, which was 16 more than originally planned, and we had a total of 2,472 stores at the end of the financial year, franchise and our other brands included. We opened five new markets: Romania, Croatia, Singapore, and via franchise, Morocco and Jordan. Singapore has started very well. We opened in the best location in Orchard Road in September. It was our first store in Southeast Asia, a region with great potential where we're looking forward to open more stores. The other new markets also had a successful start. At the same time, we expanded with our other brands: COS, Monki, Weekday, and Cheap Monday, as well as with H&M Home. COS in particular has performed very well, above our own high expectations.
COS has nearly 50 stores today in nine markets. Shop Online began for COS and Monki in 18 European markets in the autumn and have been well received. The other brands also increased sales and will see more store openings this year after a less expansive 2011. H&M offers fashion in 43 markets today, and our expansion continues. Please turn to the slide expansion 2012. For 2012, we plan to open around 275 stores net, within our growth target of 10 to 15% new stores per annum. We will open in five new markets, adding to last year, that is 10 new markets in only two years. Bulgaria will become a new H&M market this spring, with a first opening in Sofia in March. This autumn, H&M opens in Latvia, Malaysia, and Mexico. We are very much looking forward to our first step into Latin America.
Two new franchise markets are coming up: Thailand this autumn, followed by Indonesia in 2013. COS is opening in four new markets this year, with stores planned in Hong Kong, Italy, Finland, and via franchise in Kuwait. H&M is also expanding online. This autumn, we will launch H&M Shop Online in the U.S., the world's largest retail market, where demand for H&M is high and our brand is strong. Those were a few comments on our expansion, and now, looking at some key figures for 2011, please turn to the slide key data. Stock in flat was SEK 13.8 billion, an increase of 20% compared to the same time the previous year. The increase is mainly due to the expansion, but also to higher purchasing costs and the effect from the warm autumn on sales of winter garments.
The stock-in-trade as of the 30th of November includes more winter garments than previous year and is therefore slightly higher than planned. Our view is that this will likely lead to somewhat increased markdowns in relation to sales in the first quarter of 2012 compared to Q1 last year. Apart from this, the level and the composition of the stock-in-trade are viewed as satisfactory. As you can see on the next slide, in relation to sales, the stock-in-trade was 12.6% compared to 10.6% last year, but still within the range we have seen over the past number of years. Cash flow from current operations was SEK 17.4 billion. The decrease of SEK 4.4 billion is explained mainly by the lower results and higher stock-in-trade. Investments reached SEK 5.2 billion and are expected to amount to between SEK 5.5 and 6 billion in 2012. Our finances remain strong.
Liquid funds and short-term investments amounted to SEK 21.3 billion. The Board will propose to the Annual General Meeting a dividend of SEK 9.50 per share, corresponding to 99% of the net profit for the year. Return on equity was 35.8% compared to 44.1%. Before we start the Q&A session, a few comments on the year ahead. We have many exciting news to look forward to. Next week, we are launching the David Beckham bodywear in around 1,800 H&M stores in all our markets and online. This new underwear collection starts selling on the 2nd of February and will be followed by new launches seasonally. Already on the 8th of March, we have another new and very exciting collaboration, this time with Marni of Italy. Marni is one of the world's most loved fashion brands.
The collection, which is created by Consuelo Castiglioni, is for both women and men and will be offered in around 260 H&M stores around the world and online. A campaign film for Marni at H&M has been directed by Sofia Coppola, the world-famous filmmaker. All in all, the response so far from customers and media ahead of the launch is very positive. What is most important is that our own designers have created many inspiring collections for the spring. Our customer offering is attractive, and the year has started well. Around us, most indicators suggest that the macroeconomic conditions will remain tough in many markets in 2012. We strongly believe in our offering and are convinced that H&M will maintain its strong position as the year goes on.
We are growing in all our markets and with all our brands, and we are expanding to new countries. We're looking forward to another exciting year full of opportunities. We're now happy to take your questions.
Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your telephone keypad, and it's the hash or pound key to cancel. Once again, that's star followed by one if you wish to ask a question, and it's the hash or pound key to cancel. May we please ask you to ask one question at a time. Our first question comes from the line of Jörg Nowicki. Please go ahead and announce your company name.
Hi. Company name is TextilWirtschaft, based in Frankfurt, Germany. Can you give a little more extra information? I mean, Germany is the most important market on the German market. Do you have like-for-like figures? You did not mention, I mean, the other form is like Monki, Weekday, and so on did not really develop well in Germany. What can we expect in 2012 for these products?
First of all, I agree with what you say, and I did say it. On the call from Germany, it remains our most important market with around 23% of the volume. It has been an even higher share of the total because now the sales are spread in more markets than ever, and there are a lot of other countries that are catching up, so to speak. The German development, we are very happy. We believe that we have taken market share also in 2011 in Germany, and we are very proud of our colleagues in the organization. I think we do a very good job in Germany.
What about like-for-like?
Oh, we don't give out the like-for-like per market, but as I said, our view is that we have taken market shares in Germany as well and are very happy with the sales development as well in the stores as online in Germany.
How about the other formats, Monki, Weekday, and so on?
The Monkey and Weekday, in total, we're happy they are developing in the right direction, but still in an early stage, as you know. This year, we plan to increase the growth in general. I don't know about Germany in particular, but overall, we plan to increase the expansion again for those brands.
Okay. Can I ask one more question?
Of course.
Primark is opening one store after the other, especially in Germany, and it's obvious that they gain market share. How will you face this tough competition, especially in terms of prices?
First of all, the fashion industry is, in general, perhaps one of the most competitive industries in the world. We have met, I mean, there are lots of different competitors, very strong competitors in each market, but they might vary from market to market and from concept to concept. The ones you just mentioned, we know them from many years in the U.K . The U.K. was, this year, one of the strongest-performing or developing countries for us. We grew sales with 21% in the U.K. last year.
Okay, thank you.
The next question comes from the line of Richard Chamberlain. Please go ahead and announce your company name.
Thanks very much. Good afternoon, James. Company name's BofA Merrill Lynch.
Hello there. Hi.
Hello.
A couple of questions, please. One more sort of numbersy one, and then maybe a slightly sort of bigger picture one. The numbersy one is on gross margin. I think in the statement you've written about, you saw a positive dollar effect in the fourth quarter relative to when you sourced the product. I wondered if you expect a similar positive effect in Q1 if exchange rates stay at their current levels.
That's true that when we sourced most of the garments that we sell now in Q1, there was still a positive dollar effect. You are well aware that today, when we place new orders, there is a negative dollar effect going forward.
Right. Okay. Thank you. Just on your interesting how you're going into Latin America for the first time later this year, by the sounds of it, starting off with Mexico. I just wondered if you have to make some changes to your infrastructure, logistics, planning processes to be able to supply in markets like that with different weather conditions, different seasons, and so on, to be able to supply sort of in-season products for those sort of markets.
Not really. I mean, as I mentioned, we plan to enter five new markets this year, and we entered five last year. That is 10 new markets all in all in two years. Each market creates new challenges, but we have pretty good processes going on. We do always need to make some adaptions, but hopefully not so much.
Okay. Somewhere like Mexico, Nils, you'd be able to supply in-season product to the same extent as to other markets.
Absolutely.
Okay, all right. Thanks very much.
Next question comes from the line of Caroline Gulliver. Please go ahead and announce your company name.
Hello. It's Caroline Gulliver from Espirito Santo.
Hello.
I had another question on the gross margin outlook. You've helpfully obviously talked about the direction of cotton and the dollar. Are you able to tell us what you're seeing in terms of labor costs? We've heard other retailers talking about 10% labor inflation in sourcing countries. Is that something you're also seeing?
Yes. There are, as you know, a lot of moving parts in the gross margin and the cost of goods sold. Of course, labor cost is one very important factor. I think long term, there will be increased costs. Last year, at this time, we saw very sharply rising labor costs as a result of the lack of supply, if you remember. Compared to last year, I would say it's pretty effective right now. In the long term, I expect them to continue to increase.
Thank you. Just one other question, if I may. I think you said at the third quarter that the step up in IT and marketing expenses had annualized, but they also seem to have increased in the fourth quarter. I was wondering if you expected these to increase again in the first half of the coming year.
Yeah. When it comes to our operating expenses, we have increased the investments in IT online. That goes also for the fourth quarter this year compared to last year. In general, we are looking at the operating expenses on a year-on-year increase. We have a really good cost control in comparable stores. We decreased the operating expenses in the fourth quarter as we did also on the full year. When we are talking about OpEx increasing, the main explanations are the expansion, but also these long-term IT and online investments. Maybe just to give an example, when we're talking about the expansion, we have never had such a strong expansion as we have today into new markets. As Nils just said, we opened five new markets in 2011 and plan to open an additional five in 2012.
Of course, when we are entering a new market, maybe open up one or two stores in the first season or seasons. The cost share will be quite high compared to a mature market where we already have the infrastructure when it comes to logistics. Also, when we open a new market, we start directly the brand building with marketing. That is what we mean when we're talking that these are long-term investments. We are building a much, much stronger platform for future expansion and making H&M much stronger for the future. I think it's really important to understand what kind of things will affect the cost share. As I said, looking at our normal operations, we have a really good cost control where we decrease. We are happy with the cost control.
Thanks very much. That's very helpful.
The next question comes from the line of Karen Holland. Please go ahead and announce your company name.
Hi. It's Barclays Capital.
Hello.
How are you?
Good.
Wondering if you could touch base quickly on the like-for-likes that you saw in December and January. Obviously, a nice positive trend there. How much of that was full price versus driven by the increased promotions that you saw?
The like-for-like sales were up 4% in December. We haven't commented in January yet. We don't split up how much was promotional-driven. We would like to come back to the discount levels in connection to the first quarter. As we stated in the report, the somewhat higher part of winter garments, we think it's likely to drive markdowns. They will be somewhat higher than compared to last year.
Do you expect the increased markdowns from promotion to be of a similar magnitude to what you saw in the fourth quarter?
I can't tell you any more than what we've said. I'm talking about Q1 compared to Q1 last year. It has nothing to do with Q4.
No, no. I understand that. Obviously, you had an impact on the margin in the fourth quarter as well.
Yeah, that was 60 basis points in Q4 compared to Q4 last year. Yes.
Right. Maybe I can ask one more that hopefully I can get an answer from. The inventory, I know it was up 20% at the end of November. Given that we're now at the end of January, how do you feel about the inventory currently? Have you cleared through that increase, or has it remained high now?
We are in the middle of the first quarter. What we are saying is we have a bigger share of winter garments when we are going out the outgoing stock as per end of November. As we also state in the report, there is likely a risk that the markdowns as a relation to sales will be higher in Q1 this year compared to last year's first quarter. Still, it's five, six weeks left of the quarter. I'm sorry. We have to come back to the absolute level in connection with the Q1 report.
Presumably, most of the sales happened in December and January because those are the peak trading periods. You must have a pretty good view on what your inventory looks like now, don't you?
Yes. We have a pretty good view of our inventories right now. As we are talking about the effect on the gross margin as a relation to the turnover, that will be really dependent on how the turnover will develop during these past or the next five weeks. We are not just looking at the absolute figure, but as a relation, how does it affect the gross margin in Q1 this year compared to last year? That relation is depending very much on the turnover. We don't know that for the coming five weeks.
Maybe I can ask a different way. For the past eight weeks, do you feel good about where the inventory ended up compared to the sales that you've had for the past eight weeks?
Okay. A simple answer. We don't comment on the current inventory level.
Okay, thanks very much.
The next question comes from the line of Richard Edwards. Please go ahead and announce your company name.
Citigroup. It was really a quick question on the refurb activity. You talked about running at still a high level in 2011. Could you just give us some sense of how many refurbs you did in the year? In parallel with that, in terms of the CapEx spend, what portion of the CapEx spend in the year was related to those refurbs?
Again, please, one question at a time. If you start with the first question, it was hundreds plus big makeovers, refurbs. On top of that, of course, we do a lot of smaller facelifts, so to speak. It's a higher level compared to historically. We stepped up the level a couple of years ago. We kept that level pretty high and intend to keep it high also going into 2012. Regarding the total, your second question regarding how we, you know, the CapEx, we don't break out what is for new stores or refurbs. Of course, the vast majority is for new stores.
Going back to the refurbs, can you be a bit more specific on how many major refurbs you did and how many smaller facelifts you did?
I said 100 + major.
Yeah, and smaller ones?
We don't have the exact amount, but we are doing a lot of repainting, changing floor stands, building up new A areas. It's an ongoing process. We are doing it on a continuous basis. That happens every time we feel that we need to lift up the customer experience. We are doing those investments. These refurbs, these + 100, these are really big rebuilds where we start with the flooring, the ceiling, and making a total makeover of the store.
In terms of the smaller refit cycle, is that sort of once every five or six years? Is that where you've got to?
No. It can be much. It depends. If it's a city location, a flagship, for instance, it's dependent also on the footfall. The maintenance is totally different in a small store on the countryside compared to, let's say, Fifth Avenue. It can be much more often than every fifth year.
Okay. Finally, do you have a sense of the CapEx for the year ahead?
Yes, I did mention today the best estimation is between $5.5 billion - $6 billion.
Great. Thank you.
The next question comes from the line of Lucy Sharma. Please go ahead and announce your company name.
Yes. Hi. Andy Hughes, actually, from UBS .
Oh, hi there.
Hi, guys. I just had another question on supply chain. I won't go near the gross margin topic, but on supply chain, a number of retailers in the United Kingdom are certainly talking about dollar prices being flat or possibly even down as the year progresses. Would you be seeing anything different from that?
Could you rephrase, please? You mean the purchasing costs?
Yeah. The actual purchasing costs, so nothing to do with what your prices are, but your supplier prices. Others are saying that prices are flat to down. Is there any reason why you shouldn't see the same trend?
I can confirm that, of course, it looks, I mean, the development is much better today than a year ago when everything was really going in the wrong direction. We refrain from giving exact levels. Of course, the most important thing is how we will use it. I mean, what will we do with the customer offering? That's really where we start. You know we always strive to have the best customer offering, the best combination of fashion, quality, and price. Sorry, I prefer not to be more specific than so.
Okay. On the question you just asked about what you do with it, what will you be doing with it? Do you think you've made the largest part of the adjustment in terms of your relative offer?
As we said several times, the gross margin has never been, and it's not a goal story in itself for us. I just want to be really clear. For us at H&M , there is no, how to say it, an automatic link between, for instance, decreasing sourcing costs, that it will automatically lead to a higher gross margin and vice versa. That will be totally dependent on those decisions we will make when it comes to our customer offering. I think that is really important to be clear on.
Okay. Just one last definitional point. You used this word somewhat higher for markdowns in Q1. Does somewhat mean anything different in Swedish than it does in English?
Oh, no. In Swedish, we say något.
All right. Got it.
Does that bring it down?
I'll look that up and see whether that means anything different than somewhat. All right. Thanks very much.
Thanks.
The next question comes from the line of Geoff Ruddell. Please go ahead and announce your company name.
Yeah. Hi. I'm at Morgan Stanley.
Hi there. Just a quick question from your segment reporting you announced today. I see that your rest of the world operating margin went up, I call it 190 basis points, which is obviously very different from what's happened to the group overall margin. I was wondering how you managed to get such positive improvements in the operating margin in the rest of the world despite the gross margin investment that I assume we saw in those countries as well.
Yeah. As we have mentioned some quarters ago, we are using an OECD model for our transfer pricing. The idea with the OECD model is to provide a legal framework not only for the companies but for the governments to have their fair share of taxes and for us as an enterprise to avoid double taxation. We are operating in more than 30 different countries, and the local regulations will also affect this level. When looking at the development in the operating margin from last year compared to this year, it shows that the rest of the world has had a better development compared, for instance, with the eurozone and the Nordic countries. That is reflected in that.
Do you charge the same price to each country from the group? I mean, I understand that there's tax benefits to have most of the profit in the group functions line. Do you charge the same transfer price for the same item to different countries?
As I said, we are having operations in more than 30 countries. The local regulations, we have the same fundament, the same base for the transfer pricing. Some countries don't maybe accept the OECD model. Also, local regulations will affect the price that we can invoice. There are differences.
Okay, that's very clear.
There are.
If I could just follow up with a completely different question. I think my understanding is your official dividend payout policy is 50%, which is clearly a very long way from the level of payout you actually gave this year. Have you any intention of changing your official dividend policy?
It's really up to the board to answer that question. I'm sorry.
Okay, thanks very much.
Once again, that's star followed by one if you wish to ask a question. It's the hash or pound key to cancel. May we please ask you to ask one question at a time. The next question comes from the line of Anne Critchlow. Please go ahead and announce your company name.
Hi. It's Anne Critchlow from SG. I've got a question. Hi there. I've got a question on the dividend as well. Obviously, the payout ratio has gone up to 99% as the earnings have fallen and the dividend's been maintained. How should we be thinking about this in our model? Should we assume that that might become embedded with a 99% payout ratio and that the dividend should rise in line with earnings in the future?
As Nils said, in the end, this is a question for the Board of Directors and finally for the Annual General Meeting. The Board of Directors made their assessments that the proposed dividend is justifiable taking consideration our strong financial position and our expansion and also our continued freedom of taking actions as a company. After this dividend, we still have a very, very strong financial position. As I said, this is ultimately a question for the Board of Directors.
Okay. Thank you. Just one other question on the cost of impact on the gross margin. Will that be negative in Q1? We're assuming it is. I'm just wondering if that's the right assumption.
Of course, when we sourced most of the garments that we sell in Q1, cotton prices were still much higher than last year.
Will it still be negative for Q2?
It depends on how long the lead time is, which is very difficult to say because we don't source cotton directly. We source garments and our suppliers buy the fabrics, who buys the yarn, etc. It's difficult to say, but probably still negative, but maybe not as negative as for Q4 and Q1.
Okay, that's very helpful. Thank you.
The next question comes from the line of Richard Jeffords. Please go ahead and announce your company name.
Thanks very much. The company is Stifel Nicolaus . I guess a more mundane question. Last time we spoke, it was hi. Last time we had spoken about the U.S. online business being postponed until the infrastructure was in place to your satisfaction. Likely 2012, we'll see a much more aggressive implementation. I'm wondering where you stand on the U.S. online initiative and more broadly how you feel about country by country or region by region, the chance to expand your online presence.
We look very much forward to finally launch online sales in the U.S. We plan for a launch after this autumn. There is a lot of activity going on. We have great expectations and a lot of customers who are waiting for us to launch it. It is very exciting. Of course, when it comes to online for the rest of the group, the plan is to continue the rollout in all our markets. We haven't communicated any more specific plans yet.
I guess I'll try one more question. As you enter some of these new markets and you entered numerous new markets last year and anticipate next year, will you seek to have a more simultaneous online and bricks-and-mortar presence, or will you follow the patterns of the past where stores first, online to follow?
That is, we have a very pragmatic view on that and we're open to everything. If you take the launch we did with online for COS and Monki, we have actually launched that site for 18 countries, even in countries where we don't have bricks-and-mortar stores.
It is really a region or country by country and brand by brand. You'll make that decision accordingly?
There is no, how should I put it? Of course, the channels are very much integrated into each other. The idea is to have all the channels in each market. We want to do it by quality, and we do it step by step, so to speak. That is why we are at the present investing a lot, especially into the IT and online, in order to make this happen.
Lastly, any chance of COS entering the United States in 2012?
There is a big demand for COS in the U.S., but there is now nothing specific planned yet.
The interest here is high, so look forward to it. Thank you very much.
Thank you very much.
Yep.
The next question comes from the line of Fraser Ramzan. Please go ahead and announce your company name.
It's Nomura in London. Hi.
Hi there.
Just actually one question. In your statement this morning, your CEO says you're convinced that your investments will gradually become more evident to customers. Why do you think as a company that customers didn't appear to respond to your relative investment in 2011?
I'm not sure if I agree to that because it has been a really tough environment in most of our sales countries. What we have seen, we have taken market shares more or less on each market and even increased our market positions towards the peers or competitors. It has been a good investment already now, and we are convinced that it will be even more obvious for the customers in the future.
If I may add, in the U.K. , for example, in a very tough environment, as you know, we're very happy with the development. We increased sales in the U.K. by 21% in such a tough year. We see that as proof that the customers really appreciate our customer offering and the improvements that we are doing.
Okay. You do say you think it will gradually become more evident to customers. You think your, you know, could I read from that that you think your sales, for example, will improve this year on a same-store basis?
We always plan for a positive, like you know that. Yes, we always work with continued improvements, and we believe that if anything, we're even stronger today than a year ago.
Thank you very much. Thank you.
The next question comes from the line of Asad Malik. Please go ahead and announce your company name.
It's Credit Suisse in London. Afternoon, gentlemen. It was really a follow-on question to Fraser's one, actually, with regards to the level of investment that you're making in the products. You made a comment about utilizing gross margins, but perhaps putting it back into the product. I mean, presumably, the pricing is all, obviously, in terms of spring and summer, has all been fixed. Can you quantify whether you are still making investment into product positioning and pricing within spring, summer 2012?
There are a lot of people and competitors who are very interested to hear that. I can only say that we always strive to have the best customer offering, but I can't give you more details than so.
Maybe I can add that, of course, we are continuously following what's happening on the different markets and also adjusting us to prevailing circumstances. It's an ongoing work to work with the customer offering. It differs from quarter- to- quarter, from year- to- year, and so on. As Nils said, for us, it's always important to have the best customer offering on each market. That is what the main goal is.
If we looked at the negative impacts on the gross margin coming through in the first quarter, you'd have one in terms of the cotton input prices, but you'd still have a negative impact from the investment in product. Is that correct?
No, not necessarily. We're not giving any forecasts. We're just saying that, again, I repeat what Jyrki said. The gross margin for us is not the target. It's always the customer offering.
Okay. Could I perhaps just ask a question on Q4 then in terms of the investment that you made in product pricing in Q4? Was that at a lower level than, say, in Q1 and Q2?
The investments we've done in Q4 are obvious because you see it in the gross margin hit, so to speak. Again, going forward, we do not give any guidance on the gross margin. Sorry.
Okay, thank you.
The next question comes from the line of Justice. Please go ahead and announce your company name.
SEB in Stockholm. I'd just like to continue with a question on the SG&A development. In particular, I'm very impressed with the negative like-for-like development in cost. I've asked this question before, but I'll do it again. I'll ask you, how come it is possible? What is the main drivers behind the negative development in like-for-like costs?
Yeah. In comparable stores, you mean that we've succeeded to decrease the operating expense in comparable stores? Was that the question?
Yes, that's the question, indeed.
As we said, we have a good cost control. We have a flexible system, and cost consciousness is really a core value within H &M . It's everything from small things in the consuming goods. Of course, the biggest cost is how we succeed to adopt the staff planning. That is the most important when controlling the efficiency and cost level for comparable stores.
Perfect. Thank you very much. If I may, a second question. You earlier today said that 240 out of the 275 new stores to be opened this year would be H&M stores, and the rest would be split between COS and the Weekday brands. I was just wondering, as a consequence of that, will the store or, sorry, the space conversion rates in any way change, you think, compared to in 2011?
First of all, that figure that our CEO gave, it's still very approximative and very early in the year. Even the 275, as you know, is a proxy. A lot of things can happen during the year. The space conversion is very difficult to say anything. I mean, the best charges we can give is that it's roughly the same as last year.
Maybe we should be a little bit clear that those, as Nils said, 275 stores, that's our best estimate. It's a moving target in a way because there are a lot of negotiations still to be done before we are there. That's also the reason why the CapEx can differ from what we estimate when we are going into a new year. We don't have contracts for all those 275 stores when we enter a new year. It's still a lot of negotiations. There is uncertainty and also the final mix between the different stores.
Thank you.
That's the case in every year when we go up to this.
Thanks again.
The next question comes from the line of Frank Holding. Please go ahead and announce your company name.
Hi. It's Frank Holding from Goldman Sachs. I've just got two questions. The first one is just related to the CapEx. If I take your guidance and look at that against the kind of the run rate of new store openings this coming year versus just reported, it looks like on an underlying basis your CapEx is going up per store. I appreciate the comments you've just made about contracts not being signed. I was just wondering why you were guiding to effectively an increase in CapEx per store. That was the first question.
Yeah. As I said, we are guiding for CapEx from SEK 5.5 billion to SEK 6.6 billion. Last year, we had a CapEx which landed at approximately SEK 5.2 billion. As I said, this is the best estimate we can give. When we are heading towards the end of this year, it can differ because there might be new decisions made by us. As you also mentioned, there are still a lot of negotiations where we're talking about the final details. This is our best estimate that the increasing CapEx will be in this magnitude. There might be new possibilities during a year which also will affect the final CapEx.
It is clear to say that last year, in 2011, the CapEx per store was actually down compared to the previous year.
Yeah, sure. I appreciate that. You made comments earlier about investing, making long-term investments to go into new markets, which I think most people would agree is a very, very sensible, shrewd long-term strategy. I guess what I'm asking is, is there an accelerated, not just an operating cost, but an investment cost associated with that that we're seeing in that guidance you're giving?
No.
No.
Okay. Secondly, the shape of the store openings this year appears to be more weighted towards your rest of the world segment. I guess also within that, towards what we might consider kind of non-European, international, emerging countries. I just wondered whether we should expect that trend to continue and where you felt in terms of as a percentage of new space opening in two years' time, where you felt the rest of the world segment would be doing for you given all of these new country entrants.
I think it's important to state that we still grow a lot in Europe and the U.S. and the, so to speak, old countries because we still have huge potential to grow in each market. Of course, over time, new countries like China, Russia, and Asia, etc., become a bigger and bigger part of the base. China already in this year was by far the largest expansion market with 35 new stores net. The plan for 2012 is to increase that even further. I think by definition, the rest of the world will become a bigger part of the expansion scheme, but still.
Where do you?
I think it's very important, again, to state that we still, and I think we put that in the report, we still see huge potential, great potential also in countries like Germany, the U.K. , Italy, etc., in Europe, and the U.S. , of course.
Okay. Great. Thank you very much.
Welcome.
Once again, please press star followed by one if you wish to ask a question. It's the hash or pound key to cancel. We have a follow-up question from the line of Richard Chamberlain. Please go ahead.
Yeah. Thanks. Hi, guys. A couple of quick follow-ups, please, on costs. You said in the statement that you've cut costs in comparable stores in the fourth quarter. I just wondered how you see the outlook for continuing to be able to do that without affecting service standards going forward. In which areas would you look to make further improvements, please?
Of course. As I said, we have a flexible model, but we will never cut costs in a short-term way to make the store operations worse. Never. That would never happen because we understand that to have a good level, visual level in the stores, then, of course, we have to invest in the staff and the hours used in the stores. We are confident with our way of working. We have a good planning tool. The way we plan is really flexible.
We think that we can have a good cost control in the future as well. Of course, in the long run, when looking at the cost share to turnover, we need a like-for-like development, a positive one. That's one of the reasons why we are planning for it every year.
Okay. Thanks. Just as a follow-up on costs, remind me what your policy is on catalog development in markets where you're selling online. Do all countries have a hard copy catalog now where you're selling online to all customers who order from H &M ? Is that adding to cost? It does sound like it added a bit to cost in Q4 and could add again this year. What was your policy on catalog offering in online markets, please?
We see it as an important complement. I mean, we talk about the multi-channel. It's the stores, the catalog, and online together. Yes, they play still an important part.
Okay. You offer a catalog in all online markets now, do you, to regular customers? Okay.
Yes, we are.
Okay, thanks very much.
The next question comes from the line of Peter Farrand. Please go ahead and announce your company name.
It's Brian Gurney. I just had one question on the gross margins for Q4. You kindly gave us the impact of discounting of 60 bps. I was wondering whether you could give us the impact of the weaker dollar.
I'd rather not because it's very, very theoretical in a way. We did confirm that it was a positive, all things equal. However, it's very, very difficult to quantify it. The discount is very much very easy to quantify when we give it to you.
Okay. Is that a fair theoretical impact, what are 100 bps, is a fair theoretical impact?
Again, I'm refraining.
You don't. Okay, thank you.
Okay.
The next question comes from the line of Laura Guerrero. Please go ahead and announce your company name.
Good afternoon. It's Laura Guerrero from One Investment.
Good afternoon.
Good afternoon. You said that the fourth quarter achieved like-for-like growth despite a difficult comparison. Can you please just remind us how was the comparison based for the first two months of the current year?
Of the current year?
Yeah.
Yes. December was 0% last year, I mean, in 2010, and January was 1%.
Can we also say that partly the better performance or the good performance of December and January was also supported by a much easier comparison base, right?
That's true. Yes.
Thank you.
A quick reminder, that's star followed by one if you wish to ask a question. It's the hash or pound key to cancel. We appear to have no further questions at this time. I'll hand the conference back to you.
Thank you very much for participating in this conference call. Welcome back for the first quarter results on the 29th of March.
Ladies and gentlemen, thank you for your participation. This concludes today's conference, and you may now disconnect your lines. Thank you.