H & M Hennes & Mauritz AB (publ)
Q4 2022 Earnings Call Transcript
Published:
- Operator:
- 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 will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Today, I'm pleased to present Nils Vinge, Head of Investor Relations. And I will now hand you over to our speakers. Please begin.
- Nils Vinge:
- Hi, everyone. Thank you all for joining us today, and welcome to this telephone in connection with H&M Group's full year report 2023 (sic) 2022. With me today is our CEO, Helena Helmersson; and our CFO, Adam Karlsson. We will now 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.
- Helena Helmersson:
- 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 post sales in the countries effect. 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 the historically strong U.S. 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 SEK5 billion 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 SEK2 billion 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 25 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 costs which continue 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 omni-channel 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 convenience 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 have 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 into 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 COS and ARKET with an increase of 22%. Our third growth area is investments and innovative partnerships. We continue to invest through our investment on CO
- Operator:
- Thank you. [Operator Instructions] And our first question today goes to Richard Chamberlain of RBC. Richard, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question, it goes to Georgina Johanan of JPMorgan Chase. Georgina, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Rebecca McClellan of Santander. Rebecca, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Nick Coulter of Citigroup. Nick, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Adam Cochrane of Deutsche Bank. Adam, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to James Grzinic of Jefferies. James, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Hannah Boland of Telegraph Media Group Limited. Hannah, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Simon Irwin of Credit Suisse. Simon, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Anne Critchlow of Societe Generale. Anne, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to [George Nowicki] of [indiscernible]. George, please go ahead. Your line is open.
- Operator:
- Thank you. [Operator Instructions] And our next question today goes to [Chloe Mills] of William Reed Business Media. Chloe, please go ahead. Your line is open.
- Operator:
- Thank you. And the next question goes to Nicolas Champ of Barclays. Nicolas, please go ahead. Your line is open.
- Operator:
- Thank you. And we have a follow-up question from Georgina Johanan of JPMorgan Chase. Georgina, please go ahead. Your line is open.
- Operator:
- Thank you. [Operator Instructions] And we have a follow-up question from Simon Irwin of Credit Suisse. Simon, please go ahead. Your line is open.
- Operator:
- Thank you. We have no further questions. I'll now hand back to Helena Helmersson for any closing remarks.
- Helena Helmersson:
- Well, thank you everyone for participating in this conference call and we wish you all a great weekend.
- Operator:
- Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.