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Edited Transcript of HM B.ST earnings conference call or presentation 29-Mar-19 8:00am GMT

Q1 2019 H & M Hennes & Mauritz AB Earnings Call

Stockholm Apr 12, 2019 (Thomson StreetEvents) -- Edited Transcript of H & M Hennes & Mauritz AB earnings conference call or presentation Friday, March 29, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jyrki Tervonen

H & M Hennes & Mauritz AB (publ) - CFO

* Karl-Johan Persson

H & M Hennes & Mauritz AB (publ) - CEO, President & MD

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Conference Call Participants

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* Adam Gareth Cochrane

Citigroup Inc, Research Division - Director

* Anne Critchlow

Societe Generale Cross Asset Research - Equity Analyst

* Ashley Wallace

BofA Merrill Lynch, Research Division - Equity Analyst

* Charlie Muir-Sands

Exane BNP Paribas, Research Division - Research Analyst

* Chiara Battistini

JP Morgan Chase & Co, Research Division - Co-Lead, European General Retail

* Daniel Schmidt

Danske Bank Markets Equity Research - Research Analyst

* Magnus Råman

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Nicklas Fhärm

SEB, Research Division - Country Head of Sweden Research & Analyst

* Niklas Ekman

Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst

* Rebecca Anne McClellan

Grupo Santander, Research Division - Equity Analyst

* Richard B. Chamberlain

RBC Capital Markets, LLC, Research Division - MD of Consumer Retail

* Simon William George Irwin

Crédit Suisse AG, Research Division - Director

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to today's 3-month results for 2019 for H&M Group. The meeting will be 60 minutes, starting with a presentation, followed by a question-and-answer session.

I would like to introduce CEO, Karl-Johan Persson. Please go ahead.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [2]

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Thank you. Hi, everyone. Thank you for joining us today. I'm very pleased to welcome you all to this conference call about H&M group's first quarter results for 2019. With me today is our CFO, Jyrki Tervonen; and our Head of Investor Relations, Nils Vinge. You will find the 3-month report on H&M on about.hm.com/investorrelations. And before we start the Q&A session, I will give a brief comment about developments in the quarter.

Our transformation work continues at a fast pace. The positive signals we saw towards the end of last year continued in the first quarter 2019 as this work contributed to stronger collections with more full price sales, decreased markdowns and increased market shares in many markets. We expect markdowns in relation to sales to be lower also in the second quarter compared with the corresponding quarter last year.

Sales developed well, both in stores and online, in several markets, such as in Sweden, which grew by 11%; the U.K. by 8%; Poland by 15%; China by 16%; and India by 42%.

In the first quarter, net sales increased by 10% in SEK and 4% in local currencies.

During the quarter, we successfully transitioned the online platform in Germany. One of the measures we took to ensure a smooth, well-executed transition was to deliberately hold back on sales activities in Germany. And this had a dampening effect on online sales. Adjusted for Germany's online sales, total net sales for the group grew by 6% in local currencies.

All our online markets are now on the new online platform. And for customers in the German market, this means improvements such as faster, more flexible deliveries and a more seamless experience across our channels, thanks to better integration between the channels.

Profit before tax was SEK 1,043,000,000 in the quarter, negatively affected by the lower sales in Germany then of course, as well as by costs of around SEK 250 million associated with replacement of the German online platform and costs related to the implemented and upcoming transitions to the new logistic systems. This all -- this is all having a negative effect on margins in the short-term, but will have a positive effect in the longer term as it will result in a faster, more flexible and efficient product flow.

So we can see that our investments and initiatives are having an effect. We will continue driving this transformation in the focus areas that we see as strategically important for taking the H&M Group to a new level. And our focus areas are, as we have communicated before, to create best customer offering for our brands, which includes the assortment and the whole customer experience then for all the brands; to make sure that we have a fast, efficient and flexible product flow; to secure a stable and scalable infrastructure, our tech foundation; and also to add growth by expanding through physical stores, our online stores and through digital marketplaces.

Today, we're happy to announce that H&M will launch on India's largest e-commerce marketplaces, Myntra and Jabong, this year.

The rapid change of fashion retail continues, and we see that our transformation work is taking us in the right direction, even if many challenges remain and there is still hard work to do. We continue this work at full speed and are optimistic about the future for the H&M Group.

Thank you, and now we're happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Magnus Råman.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [2]

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My first question relates to markdowns in Q2. Perhaps you can elaborate a little bit about the decrease in markdowns that you expect in Q2. If you can give us any leads further on that would be appreciated.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [3]

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When it comes to Q2 markdowns, as we said in Q1, we decreased the markdowns by 150 basis points compared to last year's Q1. We are confident that with our improved stock-in-trade composition, where we sell more with full price, and the composition in itself improved even more from Q4, so we will have less markdowns in Q2 this year compared to last year. But it's still too early to give a more detailed flavor. But we are confident that the markdowns will be lower in Q2.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [4]

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Okay. Then on e-commerce sales, it was a little bit below your expectations, clearly so, in local currency terms and maybe that also ties into your announcement today to list on further marketplaces. In terms of fulfillment centers, I mean, if you would manage to meet your online growth targets, you should see online sales double in the coming 3 or 4 years. If that happens, how many more dedicated online fulfillment centers do you think you would open?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [5]

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Yes, exactly. This online sales in the first quarter was lower than before and lower than what we expect for the full year. But that is planned due to the -- us holding back on a lot of sales activities in Germany. Excluding Germany online and looking at all the other countries, online sales were up 27% in local currencies. So good -- and 34% in Swedish kronor, so good development there. So it's connected to the transition. Now all the markets are on the new platform, which is great. There's been a lot of work during the last 5 years to transition all the markets to the new platform, and a lot of investments connected to that as well. And then we have invested a lot in new warehouses, new automation and so on. So we have much higher capacity now compared to a year before, and it's in good investments that will enable good growth for many years to come. And connected to that, a lot of automation in the warehouses as well which will further increase the capacity. So we're happy with the setup.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [6]

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Right. And just a follow-on, on that. If store sales goes from current 85% to 70% in group sales in these coming years, do you believe you will shut down or downsize certain stores in the countries?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [7]

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We're constantly -- I mean, we have done a mapping of the whole logistical network, both for online and for physical stores and for omnicenters, not just based on what the group looks like today, but for the coming -- our expectations for the coming 5 to 10 years. Obviously, things can change. It's a very dynamic market and we will constantly monitor that. But yes, in certain areas, we have net closures of stores like in many markets in Germany. And that, of course, is part of the equation when we set up the logistical network.

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Operator [8]

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Your next question comes from the line of Charlie Muir-Sands.

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [9]

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I have 2 topics, please. The first relates to the systems transition. Can you firstly confirm that you have now stability in France, U.S.A. and Italy, which I think were markets you had problems with before? And generally, I know that e-commerce transition is complete, but the other wider supply chain, IT transition, is ongoing. Do you anticipate further one-off costs like the SEK 250 million that you've booked in Q1 in order to stabilize those transitions as well or should we be thinking more about clean evolution? And then the second topic just related to your current trading. Clearly, that's quite encouraging that it's accelerated in March. Given that you don't report monthly sales, I just wanted to understand whether we should moderate our ambitions in terms of April, May last year, was that particularly better or worse, and whether March this year has already benefited from the sort of push with Germany online now fully up and running or whether that's a benefit still to come through.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [10]

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Okay, thanks. When we look at the work in Southern Europe and U.S., we are at a stable, good position. Obviously, small investments still to ensure that coming transitions will be done well. So a bit of extra costs connected to that, but they will be lower in quarter 2 compared to quarter 1. So we hope and believe that we will have good transitions of -- in the future connected to the extra investments we have taken. And what was the second question?

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [11]

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It was sort of whether March is indicative of what we might expect, whether Germany online has helped that or whether there's sort of the weather comparatives on the prior year distort what we should anticipate for the rest of the spring?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [12]

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Well, Germany is back now. A little bit of the sales in March are connected to Germany. It's just up and running. So we haven't really pushed ahead, but it's up and running in a good way and it was a good transition, so that's good. Weather-wise, it has been more positive in many markets this year compared to last year, especially in Europe. On the other side, we have a negative calendar effect connected to Easter being earlier last year. So it's hard to say exactly how that nets out. But we'll continue -- and I think the main reason is better collections and that we continue on a good track from February into March, and then we'll see what will happen in April and May. It's still a shaky market. We're still in a transition period, and -- but we believe in gradual improvements.

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Operator [13]

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Your next question comes from the line of Daniel Schmidt.

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Daniel Schmidt, Danske Bank Markets Equity Research - Research Analyst [14]

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I have 2 questions. First of all, if you look at the customer offering that you're providing now online, assuming that you're a Club member, I have to say it looks quite generous compared to many others in sort of Western European markets. And so what's your thinking on that now that you're rolling out the Club in more markets and now you're -- are you in any way sort of contemplating to change the level of investments that you're doing in the offering when it comes to free deliveries and so on? That's the first one.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [15]

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Yes, it's a Club that we are happy with, appreciated by customers, many customers, where approximately 35 million customers today who are members in the Club, which is great. And we're rolling out the Club to many markets. We have introduced a lot of things for Club members after testing. So we're -- obviously, we've done it for a reason because we believe it's good and then we're always evaluating. One of the things we are looking at is to introduce a limit for free deliveries and returns just for profitability reasons. So we are -- it's something that we are evaluating, yes.

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Daniel Schmidt, Danske Bank Markets Equity Research - Research Analyst [16]

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And does that mean that this is sort of -- is this imminent or this is something that will take time to reintroduce?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [17]

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We don't want to go into details, but just to say that we are -- it's something that we are looking into, yes.

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Daniel Schmidt, Danske Bank Markets Equity Research - Research Analyst [18]

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Okay, good. And then the second question, sort of on the inventory. When you reported Q4, you were stating you were expecting sort of continued improvement in the inventory situation. And sort of at least my impression was that we should see some further cash release on the inventory as we went through 2019. Now it's actually up quarter-on-quarter. Was that your plan when you reported Q4?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [19]

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We are in line with what we expected. Currency-adjusted, it's up 5%. Composition is better. It's also a snapshot in time. So if you try to look evenly throughout a number of weeks, it's slightly better than that also. And then we believe we will see a gradual improvement throughout the year. And also, as we said, less markdowns in Q2 as a result of better stock composition. So not where we want to be. We are aiming to have a lower stock level in relation to sales. But definitely, a step in the right direction.

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Daniel Schmidt, Danske Bank Markets Equity Research - Research Analyst [20]

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All right. And is the fact that you've added warehouse capacity in any way, has that been impacting the level of stock during this time?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [21]

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No, not the main reason for -- I mean, the development now, it's more stronger collections and the better buying processes. Over time, the whole logistical network that we have and integrating the channels more will lead to better stock in relation to sales, all other things equal, of course. But -- and also, the investments that we do in AI and -- will help also in us being much more precise in predicting what type of trends, how much to quantify on a much more detailed level, how to allocate the garments. So there are many things that are -- we are investing in coming together, and over time, this will mean a lot of improvements.

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Operator [22]

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Your next question comes from the line of Chiara Battistini.

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Chiara Battistini, JP Morgan Chase & Co, Research Division - Co-Lead, European General Retail [23]

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This is Chiara Battistini from JPMorgan. Just a couple of questions, please, from me. The first one, just a follow-up on current trading. Whether you could comment with any color by region, any specific region where you've seen an improvement, of course excluding Germany where you have structural reasons why you wouldn't see a re-acceleration. And then if you could comment on the OpEx growth and the pace we should be thinking of also going into Q2 and for the rest of the year, should we still expect such an elevated level of growth of OpEx in Q2 and in H2 or a normalization at some point in the year, please?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [24]

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Yes, we mentioned we don't want to go into details in all the markets how they have developed in quarter 1. We gave some examples before, like Sweden where we grow -- grew by 11%; U.K., 8%; Poland, 15%; China, 16%; and India, 42%; and many other markets where we have seen good growth and where we have taken market share as well. Less good in Germany, connected to the online sales. Growth in the U.S., but not really where we want to be. We see that we can improve more there. But it's a step in the right direction from the disappointing development in the U.S. in 2018. So all in all, I mean, a step in the right direction. And when you -- if the question was regarding current trading in March, down on a country level, we will come back to that in -- by the end of the second quarter. You want to comment on OpEx, Jyrki?

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Jyrki Tervonen, H & M Hennes & Mauritz AB (publ) - CFO [25]

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Yes, when it comes to SG&A, OpEx, the cost control in the group is still very good. And for instance, as we stated in the report, the development in comparable stores, the OpEx increased marginally. The main explanation to the growth in OpEx is, of course, store and online expansion, but also this ongoing transformation. We don't want to give a guidance exactly where we will be in Q2, Q3. But as I said, we have good cost control. And the aim and the goal is of course to have OpEx growth less than the top line growth. But we are confident in how we control the costs. And the aim, as I said, is of course, to have a growth rate in OpEx that is less than top line growth.

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Operator [26]

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Your next question comes from the line of Niklas Ekman.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [27]

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Yes, most of my questions have been answered, actually. But if I could just ask on the currency headwinds that you talked about in Q2 here, can you give any indication about the magnitude and comparing them to kind of the tailwinds you had in Q3, Q4 and then the headwinds that you've seen in Q1. Can you give any indication here, any flavor on what kind of impact that could have on the gross margin? That would be very helpful.

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Jyrki Tervonen, H & M Hennes & Mauritz AB (publ) - CFO [28]

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Well, as always, Niklas, there are many factors impacting the gross margin. But if you look at the external factors, mainly the currency, as we stated in the report, they are gradually becoming more negative. That's all I can say.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [29]

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Okay. I know you can't comment that anymore.

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Jyrki Tervonen, H & M Hennes & Mauritz AB (publ) - CFO [30]

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No, but because then, of course, there's so many other things and there's timing and, of course, most important is the commercial decisions that we take ourselves.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [31]

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Yes, of course. And also, a follow-up on the inventory situation. Again, here, a bit surprised to see a rise in the inventory, particularly considering that sales are now growing a bit and that you've been focusing so much on decreasing the inventory. When do you expect to see this starting to decrease? Do you expect a materially lower inventory level by the end of this year? And how long do you think before you can get to the kind of target levels of 12% to 14%?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [32]

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We -- again, we have given targets, but given the uncertainty in the market, we -- it's hard, very hard to say exact timing and exact levels. We are aiming for the 12% to 14% range that we have, and we believe we will get there. Exactly when, it's hard to say. And, maybe a boring answer, but it will be -- we believe in gradual improvements throughout the year. And where we exactly will end up by the end of the year is hard to say.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [33]

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But is there any difference in the planning when you purchase now? Are you more conservative in your buying or are you still constantly planning for positive like-for-like sales?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [34]

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Yes. Our order commitment is down now. We have made improvements, what we believe are improvements, in the buying process, in how we buy. And it's also when we say that even though the -- in currency-adjusted, the stock is up 5%. The stock composition is better. Markdowns were down in quarter 1, markdowns will be down in quarter 2 as well. So we feel -- and it's for a reason. It's because we believe we feel confident in the stock composition and how we buy and in the collections.

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Operator [35]

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Your next question comes from the line of Richard Chamberlain.

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Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [36]

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So sort of one question on the loyalty program and one on the U.S., please. So the loyalty program, you say it's got 35 million members now and an upgraded version will be launched shortly. Will that upgraded version be available in all markets where H&M has its H&M Club offer? And what sort of improvement should we expect?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [37]

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Yes, it will be available in all markets. There are many different improvements and there are some things we are evaluating. So it's -- yes, more services and features will be added along the way and certain adjustments will be made. And again, one of the things we are evaluating is putting a limit on the order value. Yes, we're looking at services like buy now, pay later, yes, a lot of different things.

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Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [38]

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Okay. Got it. And just on the U.S. market, I know, obviously, has been tough last year. But it does look like you're starting to see some signs of progress in the U.S. So I wondered if you can comment on, in particular, on customer response to recent marketing campaigns. I think you had a big campaign in New York, for instance. Also, are you starting to have a more local assortment in the U.S., a localized assortment? Is that starting to help?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [39]

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There are many different things. One of the things connected to the challenging development during '18 was connected to the logistic issues that we had. And then, obviously, we are at a better level now compared to the years. We're starting to see some improvements. And I think we have a good team in place, we are looking into collection improvements not only for the global, but also if we could do things differently for the U.S. market. And also, like you say, some campaign adjustments as well or communication marketing activities. So we are looking at a lot of different things. And we're starting to see improvements. So it's better than before, but we still have some work to do.

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Operator [40]

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Your next question comes from the line of Adam Cochrane.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [41]

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A couple of questions. On online, can you sort of work out -- or help us explain how online profitability is now comparing to stores, given the improvements in the H&M Club functionality and offers that you're giving to the consumers? And as your online sales are growing, do you expect that online EBIT margin to improve as you put more volume through your automated systems, et cetera? Or as you continue to invest, should we expect quite a while before we see the EBIT margin of the online sales start to improve?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [42]

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Yes, okay. Thank you. We have a good profitability in our online channel, like we have described before. Then it's right, with the introduction of the free delivery and returns to the Club, margins have come down. We still believe it's good because it -- the customers appreciate it. We have to look at not only the margin in percent, but also in money and also what it gives over time. And so-called customer lifetime value is that KPI. But it's, again, like we said before, it's something that we are evaluating and maybe we'll make some adjustments to increase profitability. And when it comes to other efficiency measures, we have introduced a lot of automation in many warehouses, which, over time, will greatly improve their efficiency. But takes a little bit of time to adjust to new ways of working. So in certain warehouses, there has been a short-term dip in efficiency, but it will improve over time.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [43]

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Is there big regional differences in your online profitability? I don't want the exact numbers, but does it vary quite a lot by region and penetration?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [44]

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Yes, it varies a bit, absolutely. We don't -- again, we don't want to go into details, but it can vary a bit. But we have a good online profitability in all regions.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [45]

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Okay. And the second question, in terms of the markdown in the first quarter, just so I understand it, you really -- did you manage to sell through more of the old products to improve the composition, but the new products that you were bringing in, you're selling them with less discounting to give you a lower proportion overall? You're still continuing to get through the old products as usual, but your new products were on a lower rate of discount compared to last year? Is that how the overall markdown (inaudible)?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [46]

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Yes, exactly. If you divide the assortment, very -- simplified into -- I mean, new seasonal garments, we are at a good level, a bit less than last year, a higher turnover of those products, more full price selling. If you take older garments with less value, we have much less of those. So we have sold those through in a good way. And then we have more seasonless garments where we have more, but we are at a good level where we want to be. So a better stock composition.

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Operator [47]

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Your next question comes from the line of Simon Irwin.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [48]

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Just 3 quick ones. Firstly, I noticed you didn't give the sales by country in the release. Is this going to be standard going forward?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [49]

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We give the top 10 countries and sales by region, which we think is good, because it explains the majority of the company instead of going into a long list of smaller countries, it's a bit too detailed. So that -- and then we'll see what we'll do on an annual basis. This is just quarter-by-quarter.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [50]

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Okay, less disclosure is always slightly disappointing, but anyway. In terms of the SEK 250 million of OpEx, is that -- sorry, of transition costs, is that all in OpEx or is some of that in the gross margin?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [51]

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Yes, 2/3 in the gross margin and 1/3 in the OpEx.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [52]

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Okay, great. And that might answer my next question, which is just if you could walk us through the kind of negatives within the gross margin. You haven't talked much about price investments, but obviously, you have done in prior quarters. Is that one of the major features? Are you still continuing to invest in price as we go into spring/summer?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [53]

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Yes, we have invested in the customer offering in prices, in improved quality, so that's correct. And then we have the external factors that we normally talk about, currencies being a big one, of course, that has been slightly negative for the products we purchased for quarter 1 and it will be more negative for quarter 2.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [54]

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Okay. So if we're thinking about the year ahead, then, obviously, we can make our own assumptions about -- around FX and markdown, but we should assume slightly less impact from transition costs within the gross margin, but the kind of continued drag from investment in products and price presumably through the year.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [55]

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Yes.

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Operator [56]

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Your next question comes from the line of Nicklas Fhärm.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [57]

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I would just like to get some more color on sort of upstream cost inflation in local currency. Let's say sort of a market comments from your perspective would be very valid. And also, if you could link that to your [ESG] ambitions, in a sense, should we expect you to have slightly higher upstream costs in sourcing from executing on the ESG plan, please?

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Jyrki Tervonen, H & M Hennes & Mauritz AB (publ) - CFO [58]

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As we said, if you look at the external factors, they are slightly negative. And of course, there's an inflation and there's salaries that are constantly increasing. On the other hand, we are always looking to improve sourcing and make it more efficient. And of course, the sustainability or SRI, whatever you want to call it, is something that we invest a lot in, but it is also part of our offering. And very important, it's also on the positive side.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [59]

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Yes, absolutely. Can I ask you, would you care to give us any sort of ballpark ambition in terms of the number of club members by the end of this fiscal year, say?

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Jyrki Tervonen, H & M Hennes & Mauritz AB (publ) - CFO [60]

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We have -- we are planning to roll it out in another 7 markets this year. So of course, we have high ambitions. Right now, we are at 35 million members, but we don't give you -- we have the target, but we will come back to that later.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [61]

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Okay. And also, a couple of questions, which doesn't actually relate to Q1, but perhaps then more easy to you to elaborate on. I would like to ask you, if we look online, in H&M online, how does the average basket value develop versus the number of orders after you having -- sort of as you launch the club membership offering of different interim returns? Could you give us some update on past developments, please?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [62]

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Yes, without going into too much, average order value down and orders up.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [63]

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Yes, yes, okay. And final question, if I may, also relating to your CapEx guidance for this year. Down 17% from the reported CapEx in last fiscal year. If you take the CapEx -- the upper end of the range at SEK 11 billion per store, it's 20% lower CapEx per store in your plans for this year. Could you just update me again on the reasoning behind the CapEx guidance for this year and, possibly, if you have some more color to add to your plans, please?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [64]

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Yes. The CapEx guidance still remains, as we mentioned in Q4, that it will end up in constant currency, around SEK 10.5 billion to SEK 11 billion. And it's a shift from stores to more IT and logistics. But the CapEx guidance is still SEK 10.5 billion to SEK 11 billion.

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Operator [65]

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Your next question comes from the line of Rebecca McClellan.

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [66]

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Just 2 small questions from me, please. Firstly, can you remind us when the disruption began in the U.S. and Belgium warehouses in 2Q 2018? Is it already in the March base or was it later on in the quarter? And secondly, just when talking about continued price investment, what has your like-for-like prices been, say, in spring/summer 2019 versus more previous pricing?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [67]

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Sorry, can you repeat the last question there?

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [68]

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Just you mentioned a further sort of price investments, so my question is what is the trend in your full price like-for-like pricing average selling prices?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [69]

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Okay, okay. Yes, when it comes to the disruptions from last year, U.S. was, in March, I believe, it was a bit mid-March, we can double-check that, but that was only in the U.S., and the Southern European countries was later on. So not in the ground, so to say, in the March figures. And when it comes to like -- we have made investments in prices and quality, but we don't want to go into detail on the exact price development.

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [70]

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Okay. And just in terms of Easter, what do you think the effect is of a later Easter in terms of the drag in March or the benefit in April?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [71]

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I don't know. It's very hard to say. But we -- Easter effect for us has been positive for the year we have Easter. Not in all markets, but for the group as a total. And I mean, that is affecting March negatively this year. We're not through the full Easter period from last year. But on the other side, as I said earlier, weather in some markets or the majority of the markets for us has been better this year compared to last year, so exactly how that nets out is hard to say.

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Operator [72]

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Your next question comes from the line of Anne Critchlow.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [73]

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It's Anne Critchlow from SG. I've got 2 questions. The first one is about the limit that you're talking about on free delivery and returns. What sort of minimum order value would you consider? For example, would EUR 25 work for you? And then the second question is about the store reformatting trials. We've seen that a shiny new store opened on Cheapside in London. Could you talk a bit please about the new formats you are trialing in different countries? How they differ? And whether there might be a rollout of any new format?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [74]

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Yes. We are evaluating the limits. We don't -- sorry for that, but we don't want to go into the exact details of where we are with that. And when it comes to different store formats, we are trying out many different formats. Some full rebuilds, so to say, a complete new look and feel of the store, and then some lighter rebuilds as well. So we're -- and also just product presentation and a lot of different things. So we have a whole test program, a lot of good receipts from that in -- that we see customer response is really good and also sales and profits are up. So now we're taking the best parts and putting it together into a rollout package. And then, when we're ready with that, we will gradually improve the store portfolio with -- and also the new stores that we will open when we are ready with that. So it feels promising, but it's just a start.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [75]

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Okay. And would there be a higher CapEx implication if you were to roll out a new store format?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [76]

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Yes, it's -- I mean, we don't have all the details yet, depends on how many stores, the pace and so on. But obviously, there -- we have a CapEx connected to new stores that we opened today and to rebuild today. So not necessarily higher investments, but investments that will make a bigger difference.

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Operator [77]

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Your next question comes from the line of Ashley Wallace.

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Ashley Wallace, BofA Merrill Lynch, Research Division - Equity Analyst [78]

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I have a question on the composition of your 4% constant currency revenue growth in the first quarter. Given the new brand grew 17% and online grew only 10%, can you please confirm if the H&M brand store-based like-for-like was in fact positive in the period? And then just on the acceleration of growth in March, is this mainly driven by e-commerce in Germany or did you actually also see an improvement in the underlying store base like-for-like for H&M brand?

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [79]

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Yes, we don't comment on comparable sales per channel. But yes, it was better than before for the H&M brand. And when it comes to March, it was not only online sales, although, obviously, it was better with Germany being up and running again, so to say. But store sales were good -- has been good in March as well.

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Operator [80]

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There are no further question at this time. Please continue, sir.

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Karl-Johan Persson, H & M Hennes & Mauritz AB (publ) - CEO, President & MD [81]

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Well, thank you very much for participating in this conference call, and we wish you all a good day.

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Operator [82]

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That does conclude our conference today. Thank you for participating, you may all disconnect.