H & M Hennes & Mauritz AB (publ) (HMB) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today, and welcome to this telephone conference about the H&M Group's Full Year and Fourth Quarter Results 2021. With me today is our CEO, Helena Helmersson; and our CFO, Adam Karlsson. Helena will start by giving a short summary, and then Adam will talk about our financial position. Helena will then say some words on current developments and our focus going forward. After that, we will be happy to answer your questions. You'll find the presentation and full year report at hmgroup.com Investor Relations. So I'll hand over to you, Helena.

Thank you so much. Our strong recovery continues. Our customers are showing that they appreciate our collections and by quickly taking decisive actions, we've succeeded in managing the negative effect of the pandemic. The extensive initiatives and investments that we've been making for many years have helped us to create collections with the best combination of fashion, price, quality and sustainability. Despite the tough challenges, we've been able to end the year strongly with sales back at the same level as before the pandemic and with better profitability. I'm pleased that this means our employees can benefit from a further contribution of SEK 224 million to the H&M Incentive Program, which is for all employees of the H&M Group. We are a growth company, that has been firmly rooted in our corporate culture ever since the days of our founder, [ Erling Persson ]. After nearly 2 years, focusing on managing a difficult situation, we've recovered well. We're back to a more normalized situation with a strong financial position and good profitability, and that means we can go back to focusing fully on growth again. We see significant opportunities to grow both sustainably and profitably. Our goal is, by latest 2030, to double our sales, while at the same time [ halving ] our carbon footprint. The EBIT margin is to exceed 10% over time. It's a very ambitious goal that we're determined to achieve. I'll be telling you a bit more about our growth plan once Adam has given a more detailed run-through of the financial results. So over to you, Adam.

Thank you, Helena. First, some comments on the sales development. Selling during the year has clearly shown the strength of our [ omni model ] where the channels have complemented and strengthened each other. This resulting in selling back at pre-COVID levels during Q4 with an increase of 11% in local currencies compared to last year, and for the full year, sales increased 12% in local currencies. If we move on to profitability development, the year ended strong with an EBIT margin of 11% for the fourth quarter. This resulted in a strong margin recovery trend on a rolling 12-month basis, surpassing the full year levels from 2019. The strong recovery comes despite headwinds from the pandemic and is a result of well-appreciated collections, more full-price sales and an overall strong cost control throughout. Moving on to cash flow and the cash flow generation throughout the year. The cash flow from operating activities amounted to SEK 44.6 billion, up from SEK 25.9 billion in 2020. This has been one of our core focus areas throughout the year and is an outcome of the strong profitability development, very active investment in stock management and of course, positively impacted by the initiative to align our payment terms to the industry standard. The sum of this resulted in a strong development of our capital structure where net debt-to-EBITDA ratio strengthened, ending year with a net cash position close to SEK 18 billion. Based on that improvement in net debt to EBITDA, we have been able to decrease and restructure our debt, not only the debt levels, but also prolonging our debt maturity profile. And a major part of this work was the initial sustainably-linked bond issue in February where we now have secured access to cost-efficient funding through the capital market. Then finally, capital allocation. The H&M Group will continue to aim to secure financial flexibility and freedom of action at the best possible terms. Therefore, we advocate a conservative leverage ratio, aiming for a strong capital structure with a strong liquidity and financial flexibility. Looking at investments. To secure the sustainable growth, we will increase investments in the coming year. For 2022, we plan for a CapEx of SEK 10 billion. And this is aimed at strengthening the customer experience in all channels, further strengthening and adding capacity to supply chain, continued investments in tech and AI and also complemented by an ambition investment plans connected to green investments, both through our [ Co:lab ] investment arm and also directly throughout our value chain. For example, support the transition to more energy-efficient operations as well as capitalizing an increased supply of green energy. Finally, Board has proposed to the AGM a dividend consisting of an ordinary dividend of SEK 6.50 per share, complemented by a share buyback program of up to SEK 3 billion. We see this as a strong combination where the buyback program offers flexibility and gives our positive outlook the potential to create both value for shareholders as well as for us as a company long term. So with that, I hand back over to you, Helena.

Thank you, Adam. And with such strong and healthy financial foundation, we are now in a position where we can focus on growth again. As I said earlier, we have a goal that by late this 2030, we will double our sales while at the same time halving our carbon footprint. The EBIT margin is to exceed 10% over time. Our growth plan can be divided into 3 main areas: H&M brand, portfolio brands and business ventures and investments and partnerships. As regards the H&M brand, we're going to strengthen, develop and broaden the offering as well as adding service to help our customers make more sustainable choices. One example is that we're linking up [ Sellpy ], our e-commerce platform and [ hm.com ]. In this way, we will capitalize on and increase the value of H&M's brand and strengthen our relationships with hundreds of millions existing customers all over the world as well as attracting new customers. The stores and the customer experience will still play a very important role. The optimization of our store portfolio continues to be successful. As we reported previously, it's about developing the customer experience, the number of stores and terms. Now, we're also stepping up the pace of investments in both our physical and digital stores to elevate and strengthen the integrated experience further. We are also growing consistently through our other brands, new business models and initiatives. Since cost was launched, we've added Monki, Weekdays, & Other Stories, Arket, Afound, Treadler and Sellpy, and we have various new initiatives in progress. Each of these brings in new groups of customers and have great growth potential, both individually and also in how they complement and strengthen the group. All of them start from customers' demand and help make the fashion industry more sustainable. Through our investment arm Co:lab, we now have around 20 investments in new companies, which play a growing importance for our growth strategy. In a short time, these investments have created significant value both financially and within the existing operations, for example, by improving the customer experience and enabling innovation in sustainable materials. Examples of companies we've invested in include Renewcell, [indiscernible] and Infinited Fiber. In an industry in rapid transition, exciting opportunities arise, and we're constantly evaluating investments and acquisitions that could contribute to the H&M Group's continued sustainable growth. Our strong cash flow and financial position are going to be crucial to our ability to invest in our sustainable growth. Alongside investments linked to each growth area, we're investing further in infrastructure such as tech and our supply chain. We'll be investing around SEK 3 billion in 2022 in, among other things, more sustainable materials and the transition to renewable energy so that we gradually phase out carbon from our supply chain. Looking ahead, naturally, we have respect for the aftermath of the pandemic and the challenges that this will bring. At the same time, we feel confident that we are able to quickly adapt at these opportunities that arise. We have a long track record of dealing with challenges in the global economy. Our global scale, together with long and strong relations and the ability to act fast give us competitive advantages which benefit our customers. Without doubt, our customer focus, quick actions and flexibility have been key in managing the pandemic and are going to be just as important going forward. Everything we do begins with a customer. Our customers can always be confident that when they come to us, they'll be able to find the best combination of fashion, price, quality and sustainability. With continued strong collections, satisfied customers and good relations with all our partners, we're optimistic about the H&M Group's opportunities for long-term and sustainable growth. Thank you for listening. And now we are happy to take for your questions.

[Operator Instructions] The first question comes from the line of Elena Mariani from Morgan Stanley.

Congratulations on your results. I have questions on your guidance. So first of all, the 10% to 15% sales growth per annum. This is very interesting and looks quite ambitious. How do you think about the phasing of this growth over the next 9 years? Should we expect this 10% to 15% per annum to be something achievable also over the next couple of years? Or is it more like a long-term ambition clearly post 2022 to grow at these levels? And then still part of your guidance, you have clearly laid out the 10% EBIT margin target to be achieved by 2024. And what is the embedded gross margin outlook? How should we expect the gross margin to move between now and 2024?

Thank you so much. So as you know, we're a growth company. It's definitely in our DNA. We are on a growth journey after 2 turbulent years. We are in healthy financial position, focusing on growth again. Long term, definitely, we see that we will come back to growth figures of 10% to 15% annually again. The milestone that we have set for 2030 is then to double sales, and at the same time, half the carbon emissions. And this combination is, of course, also showing how we are planning to grow. So that's one of the milestones and then our journey will continue. How that will play out up until 2030, we will see. Of course, we have our plans in place, but we're humble about uncertainties around us. So we have been working very hard with our growth plans and also integrated sustainability in those. So we are absolutely confident that we will be able to do our very best to achieve the target of 2030 as one of the milestones. And then it's by latest 2030. So let's see what growth numbers that will mean nearly.

And then connected to the gross margin, as we know, it is dependent on a lot of factors. We assess the profitability target from a more long-term average gross margin development. There will be potential short-term fluctuations, but we see great potential to continue, for example, the -- the reduced share of reductions contributing to gross margins. So we use a long-term trend of the gross margin with the upside of working more effectively and efficiently with reductions looking ahead.

The next question comes from the line of Daniel Schmidt from Danske Bank.

Helena, Adam, couple of questions from me then. And following on, when it comes to the gross margin, Adam, that you answered when it comes to the markdowns. You said before, in the middle of 2019, before the pandemic, you stated that the investments that you've done in the logistics and optimization of warehousing and supply chain and so on, that you saw the opportunity not only to get back to square one when it came to reversing markdowns but you should get beyond square one. Is that still valid when you look into the future?

We still believe that, that is absolutely possible, and it's driven both by, of course, a continuous work with optimizing our buying, increasing flexibility, but also all of the support we get from digital development when it comes to optimizing pricing and markdowns based on the AI development. So we still believe that that plan is valid.

Okay. And do you see that as a sort of a linear development? Or is that going to be a couple of years out that we see more effects from what you just mentioned?

Well, it depends a little bit what you compare with. Obviously, we had elevated short-term levels of markdowns during last year during the very turbulent level. But now, we believe that we are in a stable improvement trajectory towards more normalized or lower markdowns levels over time.

Okay. And then just coming back to the growth targets, which are ambitious, I think, and especially given what you delivered in the 5 years proceeding in the pandemic, I think you had 6% growth on average. And now implicitly, you're saying that you should have at least 8% if you believe that you could double it in 2030. And of course, maybe more than that 10% to 15% is your old target. Given the investments that you're doing right now in your doubling tax, and you mentioned a few areas, do you think that you will have to stay at that level or even higher to get that growth? Or sort of how should we think about that?

We see Helena mentioned that the investment areas are more wider than before, so to say. It's not only improving our experience in the stores, but it's also enabling the digital growth to continue. But also looking at other types of investments, such as companies that will support the transition to a more sustainable, for example, material supply. So we believe that the levels are where they should be for 2022, and then we evaluate going forward how we distribute them between the different investment areas.

Okay. And then just maybe finally, a shorter one. You mentioned, like everyone else that has a global operation, that you had some supply of goods issues in connection with the Q3 report. Although you stated a couple of times that they were diminishing, but you were still seeing some challenges. How do you view that situation now going into '22? Is that unchanged? Or where are we?

Well, the industry or moreover, several industries have these challenges right now. We do think that the worst is behind us. And we also see that we have had the ability also to deal with this in a rather good way simply because of our partnerships that we have. And of course, the economies of scale, so we have some competitive advantages. But also we're kind of used to handling situations when seeing uncertainties or fluctuations in the economy, so we have been managing this fairly well. It will still be a bit challenging moving forward, but we do think that the worst is behind us.

Yes. Good. And maybe just a follow-up on that, even though you've been managing this quite well given what you've been delivering in Q3 and Q4 especially, and what you're saying now. Do you think that there's any learnings to be sort of had? Are you thinking differently when it comes to -- when it comes to faraway sourcing given that you have still so much sourcing out of Asia and you still have very much your sales in Europe? Is that in any way affecting your sort of strategic thinking when it comes to sourcing in the next couple of years?

I would say that this is really something we work with continuously, making sure that we have diverse supply chains is absolutely crucial. We have big advantages already looking at the spread of production and the fact that we're present in many different countries. But this is definitely part of our strategies moving forward to be able to grow both H&M brand and the other brands that we have that we will kind of develop the supply chain further for it to be even more flexible as we go.

The next question comes from the line of Fredrik Ivarsson from ABG.

Can we start on the inventory levels? You say that you aim to keep decreasing the inventory levels. But are you still committed to get down towards the 12% to 14% target you communicated a few years back?

Yes, that holds that target long term, yes.

Excellent. And then on expansion, and I'm sorry if I missed this, but did you have any guidance for us in terms of net closures in 2022? And also if you could give us the split between H&M and portfolio brands?

For '22, we estimate that it's going to be a net of minus 120 stores for the group.

Yes. So we plan to open around 120 and closed around 240, so net 120. And we don't have the split here for the various brands, sorry.

That's okay. And last quick one. How many members do you have within the H&M Club now?

We have a bit more than 150 million.

The next question comes from the line of Charlie Muir-Sands from BNP Paribas Exane.

Helena, Adam. I wanted to start with your 2030 target to grow revenue base by 2x. Could you elaborate a little bit more on what proportion of that growth you expect to come from the core H&M brand new business and also perhaps by channel? And then just a couple of points of clarification. You alluded to investments, is that purely organic target? Or is there any kind of assumption around M&A in there? And finally, all on that target, how important is a rehabilitation of your brand in China to reaching those goals?

Okay. Thank you. Many questions in one, but I'll start. It's looking at the 2030 goal and the 3 kind of main growth areas, H&M brand, portfolio brands and business ventures, and thirdly, the investments and partnerships. The biggest part will come from H&M brand. And here, our growth plans are based on several things, of course. But overall, I would say it's about strengthening, developing and broadening the customer offer even more. And it's also about, of course, developing the customer experience. And then, as we have spoken about many times before, it's about optimizing the store portfolio. Keep on growing the online, of course, and most importantly, develop how we integrate the channels, and that's where we see that we have such competitive advantages since we also -- we have our physical store network and then we have been growing online really well lately. So that integration is really important. And developing the customer offer, that means that we will be able to meet customers. And if you look at customer demand today, there are definitely ways in how we can give more products and services. For example, how we can connect Sellpy with H&M. And the other part is then portfolio brands and business ventures where we are also exploring new business models all to be able to meet even more demand with our customers. So the partnership part is also really important. We now have around 20 companies then, as we mentioned within Co:lab. They have shown really strong growth, but also they are a strategic value for the company. So out of these 3, H&M brand will provide the biggest parts of that growth. Then you had a question around investments.

Yes. I'll follow up on that then. Our investment guidance for next year is geared, of course, to start to realize the plan that Helena lays out here. And as the majority of the growth will come from -- from core, from the H&M brand, the majority of the investments will be to ensure that the store estate is updated, that the challenges are integrated and that we continue to invest in a strong backbone. But of course, with the strong focus on new investments in the Co:lab arm, we also see that there's a strong deal flow of opportunities coming in. But here, we will look at it as it comes. And the current investment guidance is geared more towards the proportion of growth that Helena laid out.

And lastly, you had a question around China. First of all, when looking at the 2030 goal, of course, there will be unpredictable things happening in different markets as we go since it's such a long-term goal. And we do believe, and we are confident that this ambitious goal will withhold until 2030 regardless of fluctuations in some of the markets. And other than that, China still a complex situation, so I prefer not to comment more on that.

And one very brief follow-up question, if I may. You mentioned SEK 3 billion of investment in renewables and the transition to lower carbon operations in the financial year ahead. Can I just clarify, is that operating costs in gross profit investment as it were? Or is that capitalized as well?

It is a mix. Some of it is operational, but a big part is -- is transitioning, for example, the store estate and the energy efficiency in the stores with LED lightings and so forth. So it's a combination, but as well as capitalizing then the supply of sustainable energy throughout the value chain. So it's a combination of CapEx and OpEx.

Okay. But the CapEx part is within the [ SEK 10 billion ] ?

Yes. Yes.

The next question comes from the line of Adam Cochrane from Deutsche Bank.

Great set of results there. In terms of a couple of questions from me. When you look at those longer-term targets, would you have any idea of what the store footprint might look like as we go forward? I know you've given the closures for next year. But theoretically, as you look forward, how do you envisage the store estate? And then the -- on the second question, you talked about the Co:lab investments. I just wanted to clarify exactly how they are going to impact your sales target? Because at the moment, when you take small stakes, I presume they just go in as investments, these would benefit the raw materials, the knowledge, et cetera, they supply the group that will improve the sales growth within H&M.

Right. First, about the store footprint. I mean, historically, we're kind of used to growing through growing number of stores. And as we all know, the whole context has changed simply because customers have changed their behavior. And as you know, there's many companies out there that don't have any stores at all, only work with digital that have great growth journeys. So the advantages that we have, again is, of course, that we have a physical footprint and a physical store network where we can engage with customers physically, and then we have the digital channels and how this can interact. So it's -- the growth plan is definitely something that we work on continuously. And I would say that we kind of follow the customer behavior. So the most important part when we set the long-term goal is that we listen to customers, and that we understand how to play with the physical versus digital and how to constantly integrate those, and how to make sure that we never stop developing the customer experience. Moreover, of course, the physical stores as an advantage because they can take different roles in different forms. Which is, of course, something that we work a lot on depending on how customers kind of prefer to visit us and what services that they also want. So we need to think less of growth as only being in a channel as it has maybe been historically. It's more about physical space and digital presence and how those interact.

If I then follow up on the investment then, we see that they clearly create value into waste. Both, of course, that the investments are related to the core, for example, H&M brand, where they can both enhance the customer experience but also support the transition to more sustainable materials. So they will of course, create value for the brands and the brand customers. But also, we see that they can create value as pure financial investments as well, and it has been a successful period of investment throughout the last years here. But you're right, they are not consolidated in the growth target per se as they are in all majority, only minority investments. So they're not part of the turnover target. But we see that they -- as they are so connected to the core will contribute to growth of the brand.

Okay. And just 2 quick. You mentioned sustainability there. Given the targets, that may be a question on that. When you're halving your carbon footprint over that -- the next 8 or 9 years, how do you think about doubling your sales, halving your footprint? What is the volume of clothing implied within that ambition? Are you effectively holding price mix as it is and doubling the volumes and then effectively having 1/4 of the carbon footprint per item over that period? Or is there some scope to increase prices, maybe premiumization, mix, et cetera, so that it's not a doubling in volumes? Which seems, given that the sustainability target, would make it easier to hit.

Right. Now, you're on to a very kind of important question in how to manage both, and that is also why we consider this goal to be so strong because it also shows that not only are we going to secure that customers all over the globe can make sustainable choices when they choose fashion and design, but also we will make sure that we grow within the planetary boundaries. And answer on how to do that is, of course, to move to circular. And with circular, we mean that the fibers in the garments should -- we should be able to use them over and over again, but also that one product can have several transactions. Meaning, for example, when we connect Sellpy with [ hm.com ], we can also secure that we have more durability and that each product has kind of a longer life, and also that we have more transactions per product. So when we state the target, we don't mean doubling the volumes but doubling the revenues. And it's about decoupling our growth with the carbon and climate footprint.

[Operator Instructions] The next question comes from the line of Simon Irwin from Credit Suisse.

Could you just talk about the current year? Obviously, noting particularly as far as gross margins go, I mean 4Q, obviously, good gross margins. You mentioned that [ FX ] was favorable and that input cost inflation was fairly modest. I would assume that those will reverse steadily through the course of the year. So what is your current outlook for achieved gross margins in the current year?

Correct. And everyone is aware of, there is a pretty severe cost inflation out there. But just as we manage the disruptions in the supply chain, we believe that we have opportunities here to manage this in a good way, given what Helena said, our strong relationships with our suppliers and global scale and flexibility and so on. But having said that, of course, it's challenging. And we had a tailwind last year, now with reversing and becoming a headwind. So very challenging for all of the industry. But in relative terms, I think we have an opportunity here.

And will you be offset -- will you be increasing prices to offset the higher input costs?

The most important is always that the customers can feel confident that at H&M like is one of the best combination of fashion, quality, price and sustainability. But of course, we need to adjust because as we said, the target also is about to grow with -- sustainable and in a profitable way.

Okay. And could I just ask another question about 2030 long-term targets. Where geographically, would you expect to take share? Do you think you can still take significant share in Europe? Or is it more about penetrating emerging markets? And if so, will that be through stores, through online or through marketplaces?

We have opportunities to grow in different waste in different places. So of course, there's a lot happening when it comes to channels and especially digital channels, but also then we previously explained how we're also planning to -- to develop the physical stores and the integration of the digital. So when looking at stores and when we said minus net minus [ 120 ] for this year, that will be mainly in the countries where we've been for a very long time, so mainly Europe, I would say. But long term, this is really a target that will kind of evolve as we see the potentials going forward. But we do see that we still have great potential outside Europe to grow further.

The next question comes from the line of Jorg Nowicki from TextilWirtschaft.

I hope you take all [indiscernible]. Well, I'll start with the first one. Helena, I know you mentioned you will not comment on the situation in China anymore, but this one is only to verify something. I heard that, still, the collections are not available on the -- on this big platforms like Tmall and [ JD ], and I just wanted to check on you whether this is the case, and correct or not? And when do you expect to get back there?

Right. We are not right now available on Tmall. And with regards to China, overall, I would prefer to not give any more comments. Hope for your understanding, sorry about that.

Okay. Okay. Next one would be in your biggest market, Germany. You will start doing wholesale with one of your brands at Weekday. First one would be, will you roll this out to other brands including H&M? And second, wholesale is a very complex business model where you have to deal with, like, a lot of picky retailers. What makes you think this is a good new growth channel?

Can we come back on that question because we were not updated about the details, sorry.

Okay. All right. Next one will be about platform -- platform business. Going platform is one of the big things in retail today, as you know. And when will H&M go platform and open up for other brands in its online shops?

Well, looking at our different brands, we have different kind of business models in different parts of the H&M Group. If you look at Afound, for example, that is a platform. If you look at our partnership and -- with Sellpy, that is a platform as well. If you look at H&M brand, we do have also external collaborations and external brands on [ hm.com ]. So of course, this is exciting. Moving forward also, if customers show that this is something that they appreciate, this a way to kind of broaden the offer. So I would say customers decide. Nowadays, it's easier to also follow our customers want because we can at -- follow more of that kind of data. So we will evolve as per their demand.

Then regarding your question -- sorry, regarding your question about wholesale in Germany. As I said, we're not updated about the details. But our preferred path always, of course, is the DTC, direct-to-consumer model, and that's the one we strongly believe in and will continue to explore.

[Operator Instructions] The next question comes from Richard Chamberlain.

Can I just follow up on the comments you made about inventory? How do you view the current composition of your inventory and the quality of the inventory at the end of the period, or currently actually and the sort of balance of garments that you've got at the moment?

Right now, very strong relevant. We saw -- and it's also reflected in the markdown levels for the fourth quarter that the inventory is very relevant to our customers. So competition is good and levels are also coming down than compared to last year. So it's a positive look.

Okay. And can I just ask one on the -- I think it's Page 12 of the release where you talk about a proposed share buyback. But you also talked about the corresponding bonus issue so that the level of share capital is resolved. Will that happen at the same time as the buyback? And why are you doing that corresponding sort of bonus issue as well?

Bonus issue isn't this -- let's see where you are here in the report.

It's the top paragraph -- sorry, Page 11, top paragraph, [indiscernible] buyback program. So you're going to buy back shares and then do a corresponding bonus to keep the level of share capital to save, is that right?

But there's technicalities around that there has to be a corresponding -- let's see where it says here. There's no bonus, I can't see here. Let us get back to that. I'm not sure really where in the report, you see that. The intention is to get the AGM's mandate to buy back shares. And as we stated, that should then reduce the share capital if and when the buyback program is initiated.

Okay. So we should [indiscernible] Okay.

[indiscernible] So that's the intention. I'm not sure about the wording and where you found that, but let's go back on it.

The next question comes from the line of Anne Critchlow from Societe Generale.

It's just about the carbon footprint and your target to half that. Does that include only own emissions? Or is it the full Scope 3 emissions, including manufacturing emissions and customer use and so on?

Our biggest kind of carbon emission is, of course, in Scope 3 when it comes to our supply chain, so we work with the methodology of science-based targets so both Scope 1, 2 and 3 are included. So for us to be able then to reach this target, of course, there's a lot of things we need to do, and we need to have many different partnerships. But I would state, first of all, that we need to help our suppliers to transition to renewable energy, and that we do through energy efficiency. We invest in renewables to help our suppliers to do that. And secondly, it's about transitioning to sustainable and recycled materials and also develop circular business models. And thirdly, it's all about -- it's about investing in tech in our supply chain that would help us to become even more demand-driven, and kind of secure that our customers get what they want at the right place in the right time. But shortly, it's Scope 1, 2 and 3, according to science-based targets.

The next question comes from the line of Rosie Shepard from Retail Week.

So the first question I'd like to ask about the Circulator design tool. I just wanted to know a little bit more about what it does and how it will work and how it will be applied across the H&M Group?

Right. This is a tool that we newly launched. We -- as you probably know, we work with Ellen McArthur Foundation, so we have collaborated with some partners to make the tool. And it's simply a tool that will allow and help our teams working with assortments to -- already from the design stage, design out from the principles of circularity. So actually, it includes both how you design garments and products with -- as kind of resource efficiently as possible, but also it's a lot about durability and kind of prolonging the life of garments. So it's kind of different areas included in that tool that would also help these assortment teams to make better decisions to make sure that customers can make more sustainable choices.

Okay. And then we use across the whole group, all of the different brands included?

Yes, that's the plan. It's not rolled out to all the teams yet because we just launched it and -- last year, but the plan is to roll that out broadly.

Okay. And then my other question was about the logistics center in Canada. I was wondering if you could tell me a bit more about that and how it will help to drive omnichannel integration?

Just like the new fully automated DCs we've opened up in the U.S., this will help and also add capacity. Because right now, I mean, we have a strong online growth and digital growth, and this will help in that way.

[Operator Instructions] The next question comes from the line of Rebecca McClellan from Santander.

Just looking at the top line. Could you give us an idea of what the full price sales to markdown sales split was within revenues, and how that compares to sort of the 2017 levels where there was significant markdown pressure and perhaps equally how it compares to what your ambitions might be?

Yes. As we stated, obviously, markdowns came in below what we guided for and below last year and also guided for Q1, but it will continue to be -- [ build ] last year's numbers. So as just as Helena and Adam said, this is part of the strengthening of the offering, and of course, all the investments we've done in the supply chain and tech and AI and so on, and we expect that to continue. We give you the implications on the gross margin, but we don't give you the share of full price and market of the total. But of course, the share full price is higher and hopefully will continue.

The next question comes from the line of Georgina Johanan from JPMorgan.

I have sort of 2 or 3. I'll ask them one at a time if that's all right, please. The first one was just -- in terms of your guidance of sort of doubling sales out to 2030 and also your SEK 0.10 profitability guidance for 2024, how should we be thinking operational gearing plays into that? If your sales in the near term are lower than the implied sort of CAGR out to 2030, would you still expect to be able to achieve a 10% margin? Or would that put that at risk?

Again, these targets that we announced today are very ambitious. But we believe that we are able to meet them. But of course, there are things, like Helena said, outside our control that we cannot manage, so to speak. But we definitely -- we have shown in the past, we've been well above 10%. And the last 2 quarters in '22, as we saw, we delivered above 10%. So it's definitely possible. Having said that, of course, we always need to adjust, and it's always about being customer-centric. So we need to -- and right now, of course, we have a, as we talked about before, the cost inflation and so on. So of course, we need to always balance. But we feel very -- we're convinced that this is definitely doable over time and getting back to these levels.

And then just thinking about your sort of online versus store split, and I appreciate there's a huge amount sort of integration involved in that. But at a high wall by say 2030, what level of online penetration would you expect to see? And then following on from that, whilst I appreciate you're not giving [ explicit ] space guidance for 2030 versus 2022, would you expect your store estate to be a higher number or a lower number, please?

Yes. We prefer not to kind of break down the 2030 ambition into channels simply because we think if we would set that now, we would just have to change it as we go. We need to be able to follow how customers behave and how they want to shop. So I think we have shown also in the past that we can be pretty flexible in -- in how we grow the different channels according to what customers tell us, and that we're really strong in doing that integration as well. So we simply don't have the answer exactly on each channel for 2030, but we see great potentials in planning to -- to broaden offers to develop experiences and meet even more customer demand.

And just to clarify again, it's not about online versus off-line. It's about fashion retail. And it's obvious that the omni is what customers want, and that both channels, they complement and strengthen each other. It's very, very clear.

That's helpful. And then just a final very quick question, please. I just wanted to clarify. In terms of your current trading number that you've provided, and I appreciate there's been a huge amount going on in terms of restrictions and new variants and so on. But can I just clarify that my math is right, that in December and January, sales were about 8% below pre-crisis levels, please?

We see 2019 as the sort of pre-crisis year. And if and when we discuss pre-crisis throughout the full year, we will use the financial 2019 as the reference year. So here, it's actually going back even one more year in comparison to the pre-COVID levels. And then we see a lesser decrease if you then compare it to what we communicated during Q4. So I think you need to move back one more year to get the reference to pre-COVID levels to make it consistent over the year. Just take the opportunity also to maybe clarify on the bonus issue question previously, and it was a bit unclear to me on the translation bit of [Foreign Language] in Swedish that it will translate to bonus issue. It is a technicality, it's common practice with share buyback programs. It's about restoring then the share capital to what it was before the share buyback. So [Foreign Language] in Swedish, a normal technical procedure connected to -- to share buyback programs and then translate it to bonus issue in English.

The next question comes from the line of James Grzinic from Jefferies.

Just 2 quick ones, I guess. The first one is Nils. Can I just perhaps price you on those [ COGS ] headwinds that you talked about, we all know about. So if we look at the spring summer season now and to maintain your bolting gross margin stable, how much of a price rise would you need to theoretically put in to achieve that neutrality given those pressures on inputs?

Well, James, I know your model requires those kinds of numbers, but I'm sorry, I can't give you those clear numbers. Sorry about that. But definitely, it's a headwind.

All right. And the second quick one. [indiscernible] Why -- why did the management and the Board feel that share buybacks are now the appropriate means of distributing excess cash? I'm just puzzled by that in terms of timing, and I presume the scale of it is not meaningful. So why did you feel that way?

As mentioned previously, it creates flexibility and we see long-term value both for shareholders and the company that, given the positive outlook we have. So therefore, the method was selected to distribute the excess liquidity then in this format.

So just -- so making a call on the share price relative to the prospects of the business as you see it long term, basically.

We're not -- I mean, evaluating that. But as we've been describing, we have ambitious long-term goals. And therefore, we believe that share buyback -- this amount is a good complement to the ordinary dividend.

The next question comes from the line of Niklas Ekman from Carnegie.

Can I just come back on the issue of cost inflation. I've been a bit surprised here to see a positive net effect in Q4 and neutral in Q1, given the quite massive headwinds we're seeing right now with freight, cotton and then U.S. dollar strengthening as well. When do you think you'll see this impact? Is it something that will impact negatively from Q2? And do you think that price and other efforts to mitigate, are they going to be sufficient? Or do you see a risk of margin pressure later in '22??

Well, you know you won't get a clear answer, Niklas. But again, of course, with the lag in the timing, it will be more negative going forward. But for Q1, as we said, our best assessment is neutral. But again, this is thanks to our long-term thinking and strong relationships with our partners and so on. We can't -- I mean, it's -- we're not magicians, of course, it's going to be increases going forward. And then as Adam and Helena said, we need to work even harder to not place all the burden on our customers. So -- but I can't give you any more details, sorry.

Can you just say whether this will impact from Q2 the way you see things now?

As I said, gradually, since we were helped by the U.S. dollar, that offset a lot of the effects until -- actually until Q1. But now the dollar is reversing again, so we are not helped by that. So yes, it will be gradually more negative going forward after Q1 as far [indiscernible].

The next question comes from the line of [ Des Brennan ] from [ Rafa ].

So thanks for the dividend, by the way, our clients will definitely appreciate that. I have 2 questions for Adam related to the balance sheet and the implication for cost going forward. So the first one is, if I look at the balance sheet, value of the fixed and intangible assets, I can see that they've fallen by around 15% over the last year. So when I'm thinking about my '22 [ D&A ] charge in the P&L, what are the reasons why I shouldn't use minus 15% as my guide point for that number?

Well, I mean, balance sheet has been affected by a couple of things. Most throughout 2021, we've been on fairly low investment -- I mean, balance sheet acquisition levels, so this is, of course, affected. But then also, we have some currency translation effects affecting the balance sheet as well. Now we are starting to ramp up investment levels, so I think, yes. It will not be as big an effect on the balance sheet that we've seen over the last 3 years. That's my view on it.

Okay. And then similarly, if I look at the balance sheet value of the current lease liabilities, the 1-year lease liabilities, they've fallen by 12% over the last 12 months. So what are the reasons why using minus 12% as a guide for my lease costs for fiscal '22 should not be a good guide point?

But the -- I mean, the fundamentals are the number of leases and the length of the leases that are then put on the balance sheet. And as leases come to an end, the values here decrease. Of course, we are prolonging some leases, but generally, we're also on average sorting our lease term. So most likely, we'll see a slight decrease here as well for the year, but difficult to assess at this point in any more detail.

Could you -- could you assess how much revenue would have to rise for lease costs to not be down year-on-year? Is that something that you could give us a feel for? I'm not looking for an absolute number.

Maybe we can follow up with you off-line, and Nils then just to go through the details, if that's okay with you.

Next question comes from the line of Demetris Demetriou from Schroders.

So most of my questions have been answered. Just one clarifying question. You mentioned earlier on the topic of doubling sales and you make some distinction between volume and price. Can you just clarify how that doubling in sales will be achieved?

Right. So when we say doubling sales until 2030, we don't mean doubling volume but doubling revenue. And integrated in the 3 different areas, you also see how we -- or, we have integrated plans how to move towards more circularity. So to give concrete examples, customers get more and more kind of new demands. And for example, we see that resell is on the rise, meaning that more and more customers in certain parts of the world want to also buy secondhand to make a more personal catch-up of their outfits. And that, of course, means that when you have one product, you can also see that there are possibilities to get more revenues because you can get more than one transaction on each product. That's kind of one concrete example. And the -- the kind of way forward to be able to boost double sales and have carbon emissions is to move towards circularity. And that is also why we're so engaged and that we also invest a lot in sustainable and circular materials, for example, through our investment arm, Co:lab, and then gradually integrate those materials in our own supply chain so that fibers can be used over and over again.

The next question comes from line of Andreas Lundberg from SEB.

Yes. Thank you here. Talking about the free cash flow, obviously been very strong in 2021. What do you see on free cash flow going forward and especially on the working capital movements? I know we touched upon the inventory levels, but -- what about payables, for instance?

We still see a potential, as we said before, that long-term target on an inventory level decreases is still valid, so we see opportunities there. And we also see some sort of spillover effects of the adjustments of the payment terms, so we see that there is -- but, of course, as dramatic potential connected that we introduced the supply chain financing program during this year, but still some follow-up potential when it comes to working capital.

Okay, great. And lastly, how many employees have permanently left the company since 2019?

We have to come back to -- we don't have that top of our head, sorry. But we have, of course, reduced the number of employees in the group, and you have the numbers in the report for the full year '21.

We can get back on that.

That's all for me.