H & M Hennes & Mauritz AB (publ)

Good afternoon, my name is Nadia and I'll be your conference call operator today. At this time I would like to welcome everyone to the H&M conference call full year report for 2022. For the first part of this call all participants will be in a listen-only mode during the speaker presentation and afterwards there'll be a question and answer session. If you would like to ask a question please register by the link in the confirmation email and then dial in and then press star 1 on your telephone keypad. If you wish to withdraw your question please press star 2. on your telephone keypad or press star zero for operator assistance. Please be advised that today's conference is being recorded. Today, I am pleased to present Nils Bing, Head of Investor Relations. I will now hand over to your speakers. Please begin.

Hi, everyone. Thank you all for joining us today. And welcome to this telephone conference in connection with the H&M Group's full year report 2023. With me today is our CEO, Helena Helmersson, and our CFO, Adam Karlsson. We will start with a short summary of the fourth quarter and full year. After that, we will be happy to answer your questions. You'll find the full year report at hmgroup.com, Investor Relations. Now, I'll hand over to you, Helena.

Thank you very much, Nils. So we started the year having left the worst of the negative effects of the pandemic behind us. Then war broke out in Ukraine and we quickly decided to pause sales in the countries affected and later on also decided to wind down our business in Russia and Belarus. Russia was an important and profitable market for us, so our decision to wind down the business there has had a significant negative impact on our results. The hikes in raw materials and freight costs combined with a historically strong US dollar led to substantial cost increases for purchases of goods. We have increased prices, but rather than passing on the full increase to our customers, we chose to strengthen our market position further. On top of this, there were increased energy costs as well as a one-time charge for the cost and efficiency program that was initiated at the end of the year. The combined effect of these factors amounted to a negative impact on profit in the fourth quarter totaling around 5 billion Swedish crowns compared with the same quarter last year. Although 2022 was a turbulent and characterized by negative external factors, our sales increased by 6% during the year. Customers are showing that they appreciate our offering and customer preference is increasing among women. The external factors that have had a negative impact on our purchasing costs are gradually reversing and are expected to become positive for our results in the second half of 2023. Purchasing costs are already lower for the orders being placed now compared with the same time last year. In addition, the second half will also see the positive effect of the cost and efficiency program that will drive growth and is expected to provide 2 billion Swedish crowns on an annual basis. Our long-term 2030 goals remain in place including a double-digit operating margin for full year 2024. To achieve these goals we are focusing on three growth areas. First and foremost H&M which is one of the world's largest fashion destinations with several billions of visits yearly in store and online across the world. We are further improving the assortment and the customer experience both in store and online. In order to meet our customers ever evolving expectations, we are continuing to strengthen, develop and broaden our offering with more products and services. By engaging our customers in various ways, we are strengthening the existing relationships with our customers, but also attracting new ones globally by offering them unbeatable value with affordable fashion in a more sustainable way. The new financial year has started well with strong sales development during the holidays. Sales development between the 1st of December and 25th of January increased by 5% in local currencies compared with the same period last year. Excluding Russia, Belarus and Ukraine the increase was 9%. This was mostly driven by H&M Women's Wear and COS which continued to perform well. We are focusing our expansion on increasing sales across all our channels. We have made large long-term investments with a focus on digital. Online sales continue to develop well and around 30% of sales are online which is at the same level as last year. With our digital expansion we are attracting both existing customers to more channels as well as new customers who can meet us when, where and how they want. At the same time the physical store remains much appreciated by our customers and we are continuously optimizing the store portfolio to make sure that we have the right store with the right format in the right place. We see clearly that customers want to shop both online and in store and we are continuing to grow with omnichannel sales. This once again shows the value of having both physical and digital channels which strengthen and complement each other. We are therefore continuing the integration of our sales channels to offer customers a convenient and inspiring experience. In 2022, H&M opened its first stores in Ecuador, Kosovo, North Macedonia and via franchise in Cambodia, Costa Rica and Guatemala. We are also accelerating expansion in India as well as in the North and South America region with a focus on Latin America which continues to perform well. H&M is also scheduled to open its first store in Albania during the first half of 2023 and Ecuador will be a new online market for H&M from the start of 2023. Over the past year, we have made several investments in H&M's lifestyle brands, which covers sports, beauty and home. H&M Move, a broadened sports assortment, is our latest addition and has been very well received by our customers worldwide since its launch in August. We are also growing our beauty and home offerings. In 2022, we continued to develop H&M Beauty with good results, both in-store and online. In 2023, we will launch the first flagship stores for H&M Beauty in two European markets. H&M Home also continues to perform well. In 2022, we opened seven standalone home stores and six additional markets will have H&M home concept stores in 2023. In parallel, we continue to develop all our portfolio brands and business ventures. This is our second growth area, and during the fourth quarter, we saw strong sales development for our portfolio brands, such as Koss and Arket, with an increase of 22%. Our third growth area is investments and innovative partnerships. We continue to invest through our investment arm CoLab and in a short time these investments have created significant value both financially and in the existing operations. SELPI, which we are the majority owner of, is a good example of how we continuously work on developing new circular business models and how investments in sustainability also provide H&M Group with long-term business opportunities. SELPI continues to grow rapidly with sales expecting to pass a billion Swedish crowns during 2023 and is already one of the biggest players in second-hand fashion in Europe. We also continue to invest in other areas particularly within tech, AI and a supply chain. An important part of our supply chain is our logistics systems. We currently have several global initiatives involving new highly automated logistics centers with a focus on innovation. Two examples of this are our new logistics centers in Canada scheduled for completion in the first half of 2023 and also one in the Czech Republic which is scheduled to open at the end of 2025. This will create additional capacity, flexibility and speed between sales channels as well as improved availability. Looking ahead, the external factors are still challenging, which we are humbled by, but things are moving in the right direction. Despite the tough situation in the world around us, the H&M Group stands strong with a robust financial position, healthy cash flow and a well-balanced inventory. Sales in the new financial year have started well. Combined with our investments and efficiency improvements, there are very good prerequisites for 2023 to be a year of increased sales and improved profitability. Therefore, our previously communicated goal of achieving a double digit operating margin for full year 2024 remains in place. Thank you all very much for listening and now we're happy to take your questions.

Thank you. If you would like to ask a question today please register by the link in the confirmation email and then dial in and press star followed by one on your telephone keypads. If you choose to withdraw your question please press star followed by two. When preparing to ask your question please ensure your phone is unmuted locally. And our first question today goes to Richard Chamberlain of RBC. Richard, please go ahead. Your line is open.

Thank you. Afternoon, everybody. So I've got two questions, please. First of all, I just wondered if you can talk about your plans for sourcing more product in the Americas region, how you're getting on with that and the sort of timeframe that we could be talking about for sourcing more product from the Americas region. more sort of nearshoring and so on in that region.

Thank you. Sure. When looking at the sourcing map, as you know, we are continuously reviewing and reworking that. The bigger shift that we're working on right now is more nearshoring. Concretely, that means that we are increasing the sourcing mainly from Europe, but also we're exploring production also in the Americas primarily than in Latin America. But the bigger shift that is happening right now is the increase in Europe. Let's see where the exploration work in Latin America leads us.

Thank you. And then the other one is on page nine, I see you state that sales on the second-hand platform, SELPI, obviously up very strongly last year, expected to exceed one billion SEC this year, and you're planning to consolidate that business As from Q1, can you give us a sense of how much profit that company makes at the moment to help us with the modeling for this year?

I think when modeling it, you can consider it as profit neutral for the group for the year right now. We will consolidate it, but it will not have a material effect on profitability for the year.

Thank you. Thank you. And the next question goes to Georgina Johannon of JPMorgan Chase. Georgina, please go ahead. Your line is open.

Thank you. I've got a couple of questions as well, please. Just the first one on the gross margin, appreciate that your comment factors will be, external factors will be very negative in Q1 as well. Just to clarify understanding, should we expect a similar rate of decline year on year in the first quarter as we saw in Q4 2022, please?

As we commented in the report, the sum of all external factors are peaking now end of 2022 and into 2023. But on top of that, we also have some year-end effects in fourth quarter that will not be comparable to first quarter. So we believe that some of the fundamental external factors will remain very negative, but potentially not to the full extent as is reported right now for the fourth quarter.

Are you able to provide a magnitude of the one-off year-end effects or year-end effects, please?

No, no, no. Right now, we don't quantify those effects.

But if you think of it as a shape, most likely, it's the bottom now, or the peak, hopefully. and the direction is going in the right way, as we said. But of course, the inventory right now, most of the products are bought when the dollar peaked, so to speak, at historical heights. But going forward, the products we buy now, as we state, actually have a lower purchasing cost compared to last year at this time for comparable products. So that's why we dare to be brave and point out that we will improve during the year and stay with the profitability target for next year, as we'll talk about more later.

That's helpful. Thank you. And my second question, which was a follow-on, I guess, was I appreciate what you said on the gross margin, but obviously with Q1 tending to be a sort of somewhat smaller quarter in absolute terms, but yet still seeing some gross margin pressure. I mean, should we be expecting a sort of a meaning, you know, a profit in Q1 or is it close to break even? It's sort of a more sensible assumption at this stage.

As you know, we don't provide guidance and forecast like that. So we just give you the background and the external factors, so to speak, and the shape. But then we can't be so granular to say exactly how much. And so I leave it to you to make your best assumptions. But it's definitely, as we said before, a very challenging external factor, also for Q1, definitely.

Then we do see, as you saw in the report, the start of sales in this first quarter. we do see that it looks good, especially if we look at H&M ladies cost, just to give a few examples. So that is a pretty good signal, of course.

Correct.

Thank you very much.

Also, just to add, and also be cautious, you know, I'm always cautious. Q1 will be the last quarter when we have Russia in the basis for comparison last year before we paused and winded down the operations in Russia. So that's still in the basis for comparison from last year.

Thank you.

Thank you. And the next question goes to Rebecca McClellan of Santander. Rebecca, please go ahead. Your line is open.

Hi, good afternoon. Can you hear me?

Yes.

Yes, hi. On the December and January trend of plus 5% or plus 9% underlying, is that similar for both months or was there a change of sort of growth rates from December into Jan? And secondly, what's the price ASP contribution to that growth?

Looking at some of the December effects were driven by positive trading days and calendar effects so we saw a relative to January a slightly stronger December but all in all it has been a fairly sort of given that it has been consistently strong throughout the period. And we don't give complete guidance on the price increase and how much that has sort of driven the selling. But we have over the autumn increased prices and still maintain our position to ensure that the value proposition is still complete for us compared to competitors.

Thank you.

Thank you. And the next question goes to Nick Coulter of Citigroup. Nick, please go ahead. Your line is open.

Thank you. Hi, good afternoon. Thank you for taking my questions. I have two, please. Firstly, could you give a sense of the elements relating to Russia in the fourth quarter income statement? I guess for sales, gross profit and SGA, if it's possible to get a flavour there, please. And how does that interplay with the elements of the £2.1 billion Exceptional in the third quarter, please. That's the first one. Thank you.

Well, as we mentioned, there are two components to the effects of the wind-down of operations in Russia. One is a one-time closure cost-related provision we did in the third quarter amounting to 1.7, 1.8 billion euros. The rest that we mentioned in the report is about a $2 billion sort of drag on the operational profit for the year, then with the negative delta year-on-year based on less trading and having the stores in Russia closed. And for fourth quarter specifically, that amounted then to close to $600 million SEC, also stated in the report. So that's pretty much the picture we can give at this time.

But it looked like you sold pre quite a lot. in the fourth quarter, you cleared down quite a lot. So you obviously had a decent amount of sales. I'm interested in how that flowed down the income statement, if that's possible, please.

We saw that we had a strong reopening end of August and into September, but then we gradually started to close stores and with that gradual closure of course we needed to take more discounts over the month in order to clear out the stock and time that with the closure of the stores by 30th of November. So not material impact on the profitability from a positive perspective during fourth quarter. Okay, thank you.

And then secondly, would it be possible to talk a little more around your targets or ambitions for nearsourcing on a global basis, please? And are there any milestones we should have in mind?

Thank you. Right. To repeat a little bit, but we are driving a bit of a shift of course still working hard with our sourcing in Asia but shifting some also to do more nearshoring and then the biggest step is to increase it in Europe and the reason for why we do that is first of all that we do see a need to Even though lead times have been reduced to do it further, especially on the parts of the assortment that is more high fashion. So simply to be even quicker to react to upcoming trends and customer demand, we do see that benefit of being even faster. and also using tech data and AI to, for example, quantify to be more precise. Then, of course, it's also a benefit looking at the exposure of currencies to also spread the risk a little bit.

Yeah, that's very helpful. In five years' time, should we think that you'll have a 50-50 split between near and far sourcing, or how far do you think this shift will go?

No, we don't have any goals like that. I mean, this is an enabler for us to be even more responsive to customer trends. So we are now implementing those plans that we have set and we will evaluate them as we go.

Thank you so much.

Thank you. And the next question goes to Adam Kosherain of Deutsche Bank. Adam, please go ahead. Your line is open.

Good afternoon, guys. A couple of questions, please. In terms of your proposition to customers, you talked about not fully passing through the input cost inflation to the consumer. Do you think that the consumer takes a while to notice the fact that your price position is improving compared to other companies, and then that the sales growth that maybe you saw in the first bit of of the current financial year? Is customers starting to reflect that?

I mean, it's difficult to say. We do our best to look at customer feedback and the sales analysis. But so far, it seems like we've taken the right decision when it comes to working quite dynamically with this. And with that, I mean to... raise prices a little bit differently on different markets to secure our competitive advantage and that we can truly keep our promise to deliver the best value. And knowing the customer sentiments and looking at the collections and how they are received, we could say that overall it seems that we are competitive. I mean, this is something we have to follow throughout, definitely, and work with it as we go. Again, the most important part is also that we see that some of the external effects looks much better in the end of the year so that we look upon this more long term.

Thanks. And the second question is one that I suppose Neil is asking me to ask about your double-digit margin. How do you view the moving parts from where we are here to a double-digit margin over the next 18 to 24 months? How would you try and help us classify what's the most important part, sales, gross margin, recovery, operating costs, reduction? How would you think about those bits?

Right, I can start and then Adam feel free to fill in but this is really about pulling the brake and accelerating at the same time. So of course it's about implementing the cost and efficiency program that we have spoken about so that we become more efficient but also faster and more flexible. And then it's also about having discipline when it comes to our focus areas because we do see that those give us results both when it comes to sales, but also profitability. And with that I mean how we work with assortment, how we also keep on digitizing our supply chain and integrate it when we work with assortment so that we can become more precise and accurate to meet customer demand. And of course also When it comes to the customer experience, both digitally, but also how we continuously improve and update and optimize our store portfolio.

And exiting 2021 and into 2022, we were on a rolling 12 basis, closer to 8.5% EBIT margin. So we believe that we should be sooner than later be able to get back on that track with more stable sales and trading environment. But the key, of course, in April will be the normalized gross margin. And that is what now, without giving a forecast, but some of the external factors are pointing at that we could see towards the end of the year. So Helena mentioned that we need to be disciplined in all of our cost actions, follow through on the selling, but also, of course, having a normalized gross margin to ensure that we can continue that pathway we were on a year ago.

I'll just squeeze one last one in on sustainability. It's an important part of your business. There's been a few issues with the marketing and the advertising of sustainability over the last 12 months. Given it is one of your key strengths, how are you going about telling your customers now about your better sustainability credentials given some of the challenges that we've got in the markets?

Yeah that's of course really important both with the transparency to our customers but also to create even more awareness and make sure that it's really one of our competitive edge in the customer offer and right now There's a lot of legislation going on. We have been in the lead for a very long time in this question in the industry and also collaborated with many others. There have not been any legal frameworks in the past and we decided to not wait for it but to come together with others, academia, competitors and others in the industry to start and be more transparent to our customers. Now as more legislation is being shaped, of course that is scrutinized, so we need to come together to share our learnings with those also creating the new legislation, but also of course for us to come together and see how we can adapt and improve. So we truly think it's great with more frameworks and more legislation around this because that also means that we will have an even clearer competitive edge.

That's great. Thank you.

Thank you. And the next question goes to James Grisnick of Jefferies. James, please go ahead. Your line is open.

Thank you and good afternoon all. I had two quick questions. I guess the first one, just a matter of specifics for Q4. Can I just ask what you did with your marketing budget in the past Q4 year and year? How that shifted to set some of the one-off dynamics that you talked to in terms of that base of delivery? And the second one is around, I guess, continuing on Adam's question, there's about 600 basis points of margin rebuild over the next two years that you're pointing to from the clean base of the folio you just reported. Would it be fair to assume, given what you're saying, that about 400 basis points of that comes from gross margin and the balances really coming from sales per square meter and OPEX efficiencies?

Starting with the last question, we are given then the external factors, seeing opportunities to come back to more normalized gross margin levels. If you look back a couple of years, that is approximately the delta you're seeing, at least in fourth quarter. That is the answer to the second question. And the other parts will come from the cost and efficiency program then in combination with the operating efficiencies throughout the sales structures.

So two-thirds, one-third split gross margin and the rest broadly seems fair.

I think we're not going exactly into the details, but the majority of it will come from a more normalized gross margin as we're in an extreme situation right now. So that's a fair assessment. Absolutely. Great. Thank you. And the first question, sorry, I missed it.

Yeah, I was wondering what happened to your marketing budgeting to fall year and year.

It is still slightly elevated compared to the year before, but not to the extent as previous in the year. We had big launches of new concepts, move, and other things throughout the year, so that drove marketing earlier in the year, and it's still on a slightly elevated level, but not to the extent of previous quarters. Great. Thank you.

Thank you. And the next question goes to Hanna Bolland of Telegraph Media Group Limited. Hanna, please go ahead. Your line is open.

Hi there, thanks for doing this. Just it would be good to get a bit more colour on what you're seeing among customers at the moment and whether you are seeing people kind of choose cheaper items, whether kind of people are trading down at all and then it would just be good to get a bit more detail on pricing as well. I think you kind of mentioned that you might have to raise prices further. What could that look like for customers and when should they expect potential further increases?

Thank you. Well, we're of course trying to follow customer sentiments as close as we can. As usual, we see that fashion is... I mean, also now when we bring in new and more high fashion spring garments, that is very well received. But of course... doing that for great value of money is really really important so that's why we try to be even clearer or also with the customer offer and the customer proposition also from a price point of view we follow competition very closely to secure that we are competitive and moreover we also see an increased awareness of course when it comes to sustainability so We do believe we have a great position when it comes to value for money and also offering products that are more sustainable. And of course, this is something we have been following really closely since we have also increased prices on certain product types a little bit differently on different markets. And since we also see that the external effects will gradually improve. We don't want to raise too much prices to then lower them again because we have a promise that we've made to the customers that we should deliver the best value for money. So we do think that we have managed this in a wise way and we follow continuously the customer feedback on that.

Just to add on what Helena said, also what we see is, again, it's not just the price. It's always the value proposition. And I think that the success of cost and market also shows that which are in higher price levels than the H&M brand.

Great. Thank you. Thank you. And the next question goes to Simon Irwin of Credit Suisse. Simon, please go ahead. Your line is open.

Hi there. A couple of questions for you. Could you just talk about Going back to external factors, if you X out the FX, can you just talk through the moving parts that you're seeing in terms of raw materials, labor, and freight? Are you seeing local dollar costs coming down on a landed basis, XFX? Which parts of that equation you're seeing the movement in? And then I can just ask a question on the 2020 to the 10 year ambition to double sales. Where's that going to come from? I mean, sales have been, sorry, store numbers have been falling for the last three years or so. So are you basically kind of going to achieve this ambition by doubling the share of e-com, you know, or will you get back to growing store numbers at some point in the not too distant future?

Well, if we start with the sort of moving parts and excluding ethics, then we have been seeing a raw material price increase over the last couple of years and on the backdrop of COVID with high demand and disturbances in the supply chain. In sort of mid-autumn or late autumn, we've seen that the raw material prices and particularly when the corporate prices have started to stem down on a year-on-year basis, which is then, of course, favorable going forward. From a sequential point of view, this will affect the orders we will place during the spring, and as Lena mentioned, we already start to see the year-on-year effects coming down. Other than that, we also see that international freight and transport costs are likely to come down. That has also somewhat a delayed effect, so we expect if these spot rates are consistent with the current levels to be positively affecting us from end of second quarter into third quarter. And then, of course, we do see some salary cost inflation in some markets, but we believe that that is a lesser negative effect than the positive other effects that we've been seeing about the raw material costs coming down and the international freight costs also potentially coming down going forward.

Yes, sorry.

Elena, you go ahead.

Okay, so I was just going to comment on the 2030 growth targets, and you're correct, we are keeping that, even though, of course, it was set in a different context before the war, but we do think that it's possible, and that's what we're going for, and We are driving growth plans within three areas. The first one and the most important is H&M. The second one is portfolio brands and business ventures. And the third one is growing through investments and partnerships. For example, we have our investment arm Colab that has been investing very strategically with creating a lot of value. But of course the biggest part is from H&M so I will talk more around that. The growth will come from our focus areas linked to improving customer offer, customer experience and also digitizing the supply chain. And this will help us also to grow in comparable stores and also, of course, digitally, because that will, of course, help us also to be more accurate, more precise, and meet customer demands to an even greater extent. So there's a lot of improvements going on in store portfolio and within the assortment strategies also linked to tech and supply chain. Other than that, we're also broadening our offering, and you have... Probably also seen that even though it's been turbulent during 2022, we've been able to invest in broadening our offer. We've done it both in, for example, ladies, but also in lifestyle brands such as H&M Move, the sports assortment, also Beauty, we're broadening, and also H&M Home. And then we have other businesses such as Selfie that we spoke about before, which is another example. And besides that, we also see, of course, the opportunity to grow geographically. First of all, we focus on region Americas, especially Latin America. There's also great potentials in India, for example. And as you saw in the report, we will have a net closure of 100 stores. That's the best estimate for 2023. So gradually, that is coming down. So of course, we also see great opportunities to grow in number of stores again.

Great. Thank you very much.

Thank you. And the next question goes to Anne Critchlow of Society General. Anne, please go ahead. Your line is open.

Thank you. Hello, all. I've got three questions, please. The first one is about the trial you've been running for online returns and charging for those. Are you considering rolling that out?

Yes, we have decided to roll that out. So we had good results on that test. So if I remember correctly, it's roughly 10 to 15 markets in the next step. And then we will take it from there.

Thank you. The second question is about the marketplace sales that you have on H&M. Please, could you give an update about the number of brands and countries and how that's going?

Right. So we have that now on six markets. And we are collaborating with around 70 external brands. And of course, we also have our own portfolio brands in there so really interesting to see the cross shopping since many customers want to mix and match from different brands so we are partnering up with other brands that are also strengthening the pure offer from an H&M perspective so it's still in trials I would say and we're assessing it as we go but positive response from customers, I would say.

Thank you. And then finally, just a reminder, please, on the H&M incentive program and whether we need to budget for 10% of the PBT increase being awarded to staff in the fourth quarter.

Hopefully, yes.

Okay, cool. It's still running. Right. Thank you very much.

Thank you. And the next question goes to George Nowicki of Textile Workshop. George, please go ahead. Your line is open.

Good afternoon. Thank you for taking my question. Well, actually, some of them have already been asked, but I have a few more. So first of all, there's a fast, quick follow-up on SELPI. The turnover target you're giving us for SELPI, is that net or gross, meaning before or after returns? It's gross, it's gross. Gross, so meaning that it's actually only 50% of that is the actual turnover, considering the return rate.

Okay, it's the gross merchandise value, but it's off the return. So it's in that sense then the net effect on selling off the returns. So it's the net. I don't understand. Then it's the net. Then it's the net revenue, absolutely, yes.

Okay, all right. The second one would be, how happy are you with the development of your biggest market, Germany?

Well, overall, we have seen in Germany also from customer sentiments that to some extent, It's been challenging. However, we see when looking at our performance, it's according to the market as a whole or slightly above.

Okay. In Germany, did you reach the level of 2019 already?

We have to check that and come back. I don't have that at the top of my head.

Okay. All right. Next one would be China, which was a big thing during the last telephone conference we had. How is everything going there at the moment?

Roughly the same answers as last quarter. Still challenging, but slowly it's going in the right direction. We keep on working hard with making sure that the customer offer and experience is really relevant. And of course, we're still in dialogue with multiple stakeholders. So slowly, we're taking steps in the right direction.

But all the stores are open and are you back on the big platform as well?

All stores are open. There's some restrictions to opening hours due to COVID. But other than that, it's open and you can also find the offer on Tmall.

Okay. All right. Thank you.

Thank you. And as a reminder, if you would like to ask a question today, please register by the link in the confirmation email, then dial in and press star, followed by one on your telephone keypads. And our next question today goes to Chloe Mills of William Reed Business Media. Chloe, please go ahead. Your line is open.

Thank you. I just wondered if you could give any more detail on the performance in the UK. Did you see more return to stores in the UK over Christmas than last year?

We have seen a strong development in many markets, and particularly in Northern Europe over the last quarter, and the UK is one of them where we have had strong trading. We don't have the specific numbers for the last month here, but it's been a generally strong trend.

Okay, thank you.

Thank you. And the next question goes to Nicholas Champ of Barclays. Nicholas, please go ahead. Your line is open.

Good afternoon. Thanks for taking my questions. I have two. The first one is you plan to close down a further net 100 stores this year. When do you expect to resume a net positive store opening program? In other words, when do you expect to complete the rationalization of your of your store network. And the second question is, would you consider that you are currently growing market shares in the different markets? I mean, based on recent performances compared to some of the listed competitors, tend to suggest that you underperform some of these listed players, but perhaps you have more accurate data to share with us. So which are the markets where you are performing and are you considering you are getting market share? Thank you.

Okay, so first question then and number of stores and when start to increase again. We don't have that kind of date because we kind of continuously assess when it comes to consolidations and also opportunities to open and use stores. But as you have seen throughout the past few years, a net minus of 100 stores is much less than the past few years. So we're coming to a place when our store portfolio becomes more and more optimized. So of course our aim is to start to grow with opening new stores also again and come to a plus, but we don't have a date for that yet.

And perhaps, in which markets do you plan to close down more stores, I would say, and in which markets do you plan to open new stores this year?

Yeah, I would say mostly then on the mature markets. So looking region-wise, it's more in Europe than other places in the world where we have still have some closures to do. And again, important then to look at the integration of physical stores and digital channels. Then we have the question on market share.

And when it comes to market, it's always difficult to, you know, how you define the market and so on. And, of course, it varies from market to market because there are different competitors and so on. But overall, we see that we are performing according to the market or above in most markets, especially the most important markets for us, like in U.S.

and Germany. Okay, thanks.

Thank you. And we have a follow-up question from Georgina Johannon of JPMorgan Chase. Georgina, please go ahead. Your line is open.

Yeah, thank you. Two follow-ups, actually, please. The first one, I think you just touched on it, but I just wanted to ask about your overall performance in the U.S. more recently, given that I know you've made some sort of meaningful changes in that market, but also the backdrop has been a little bit more mixed there than in Europe. So any color would be helpful. Yes.

Yeah, so we could see. Yeah, so continue to do well in the US. And the US is now the most the biggest market for us, which is interesting, of course, driven also by the strong US dollar. But I just spoke to our country manager yesterday, he was quite pleased about the performance, but there is still a lot of do a lot of potential. And very good, very positive sign is that we get in a customer surveys, the more and more especially women who prefer H&M more compared to other competitors.

Thank you very much. And my second question was just a follow-up to what's been asked around the nearshoring. Just to understand, because my understanding had always been, of course, sourcing from Europe on a kind of light-for-light basis was more expensive than sourcing from Asia, and particularly now that freight rates have normalised somewhat. I mean, should we be building in kind of an incremental cost for that as you bring more sourcing sort of close by or would you expect that to be offset by a better markdown trend for example?

The last bit of your question there is referring sort of to the potential we see. Helena mentioned the higher relevance, the shorter decision lead times and the more accuracy in our buying will offset the the potential higher purchase cost. And then in a year like this, of course, with the fluctuations of the currencies and also transport costs being very, very high, the negative impact is very, very limited. But in a more normal sort of external environment, we believe that the closeness to the customer and the shorter decision lead times will clearly lead to higher selling, more relevance and lower marketing levels.

Great, that's very helpful. Thank you very much.

Thank you. And as a final reminder, if you would like to ask a question today, please register by the link in the confirmation email, then dial in and press star, followed by one on your telephone keypad. And we have a follow-up question from Simon Irwin of Credit Suisse. Simon, please go ahead, your line is open.

Yes, could I just ask about the dividend? You have a stated policy of a 50% payout. Obviously, the payout for... for 22 is well above earnings. And from what you're guiding, it doesn't sound as though you're going to deliver six kroner of EPS in the current year. Can you just kind of talk us through the decision to keep paying the dividend despite your supposed policy of paying out 50%?

We have during the last year been very consistent and disciplined regarding our capital allocation strategy and when making this assessment we always consider that. We always consider the capital structure targets that we then communicate as next step in relationship to EBITDA where we have a sort of a ceiling level that we are well below. We also consider, of course, the investment needs. And we are now guiding for investment levels on similar levels to pre-pandemic levels. And here also needs to be considered that we don't have the store expansion as we did pre-pandemic. So we believe that we have sufficient funds to invest. And then last but not least, of course, we have a responsibility to to ensure that we manage the owner's money in a responsible way, and then dividend is a natural part of that. So we believe we have a strong capital allocation strategy that we follow and sort of stand behind the recommendations from the board.

Okay, thank you very much.

Thank you. We have no further questions. I'll now hand back to Helena Helmerson for any closing remarks.

Well, thank you everyone for participating in this conference call and we wish you all a great weekend.

Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.