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

Hello, and welcome to the H&M conference call 6 months report for 2022. [Operator Instructions] And 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.

Thank you. Hi, everyone. Thank you all for joining us today, and welcome to this telephone conference about the H&M Group's 6 months results 2022. With me today is our CEO, Helena Helmersson; and our CFO, Adam Karlsson. We will start with a short summary of the second quarter. After that, we will be happy to answer your questions. You'll find the 6-month report on hmgroup.com, Investor Relations. Now I'll hand over to you, Helena.

Thank you, Nils. H&M Group's strong development continued during the second quarter. Well-received collections led to further increase in full price sales and decrease in markdowns. The physical store remains much appreciated by our customers with sales increasing substantially during the second quarter, while online sales continued to perform well. 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 smooth and inspiring experience. At the same time, we also continue with our store optimization to make sure that we have the right store in the right place. Our customer offering is well positioned, and we are fully focused on meeting customers' ever increasing expectations of affordable and sustainable fashion when, where and how they choose. As you all know, we started the year by communicating our 2030 goal when we are to double sales, while at the same time passing their carbon emissions. Profitability is to exceed 10% over time. To achieve these goals, we focus on 3 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 continuing to develop the customer experience by further broadening the assortment and services for H&M. And while doing this, we strengthen our existing relationships with our customers and also attract new ones by offering them unbeatable value with the best combination of fashion, quality and price in a sustainable way. H&M is now accelerating its expansion in regions North and South America with focus in Latin America, where a large number of leases have been signed for new stores. Our second growth area is portfolio brands and business ventures. And during the second quarter, we saw a strong sales development, especially for COS and Other Stories and ARKET. In addition, the majority-owned Sellpy and e-commerce platform for second-hand sales also continued to perform well with doubled sales in the second quarter. Sellpy is available in 24 markets in Europe and is a good example of how we continuously work on developing new circular business models, and how investments in sustainability provide H&M Group with long-term business opportunities. Our third growth area is investments and partnerships. We continue to invest through our investment arm CO:LAB. And in a short time, these investments have created significant value, both financially and also in the existing operations, for example, by improving the customer experience and enabling innovation in sustainable materials. Two companies that we have invested in are Renewcell and Infinited Fiber company. They are now scaling up. And thanks to our early investments, we have already started using their innovative and sustainable materials in our collections as well as securing additional access for many years to come. We also continue to invest in other areas, particularly within tech, the supply chain and sustainability. Looking ahead, most of the restrictions related to the COVID-19 pandemic essentially seems to be over, but there are still many challenges. Disruptions and delays in the supply of goods remain but are gradually mitigated. At the same time, we are seeing substantial inflation. We are deeply concerned about the war in Ukraine and sympathize with all those affected. The consequences for our business are continually being evaluated. We are actively looking at various options to find solutions that give consideration to customers and colleagues as well as the impact on the business as a whole. We have long experience in dealing with challenges in the global economy. And we are currently carrying out extensive work to prioritize initiatives, redistribute resources and to ensure continued good profitability. Now it is more important than ever to be flexible and take quick decisions to navigate in a rapidly changing world. Customers should always feel confident that all the group's brands provide the best combination of fashion, price, quality and sustainability. We see good opportunities for profitable, long-term and sustainable growth as we have strong customer focus, fantastic and committed colleagues, close relationships with business partners and a robust financial position. Thank you very much for listening. And we're now happy to take your questions.

[Operator Instructions] Our first question comes from the line of Fredrik Ivarsson from ABG.

Two questions from me, please. First one on the external brands that you led on to the H&M platform during the year. If you could talk a little bit about the learnings and also maybe whether is a driver for the increase in stock in trade or if that's not a significant impact at this point.

Right. Yes. So we have been testing now to bring in more brands on hm.com. And that is one of the initiatives to broaden our customer offering. So far, the results we have seen from the customers is very positive. So looking at selling [ cross brands ] seems to give a lot of value. But so far, it's a little bit early to draw some final conclusions. So we're following the development in Sweden and Germany carefully. But so far, it seems to be much appreciated by our customers.

And on the stock side, it has no material impact at this point. As Helena said, we are testing and testing fairly small in 2 markets.

Perfect. And the other on the portfolio brands. You gave us the growth pace and have been doing so for a while. But can you give us a sense for the actual share of sales side? I believe it was like 7%, 8% back in 2018?

Right. We don't give exact numbers per brand ratio, but of course, we're really happy to see the progress when it comes to both H&M brand, but also the different portfolio brands. And here, we're highlighting the brands that is kind of showing fantastic results when it comes to sales this quarter.

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

I've got 3, but I'll give you briefly one in turn. The first is with respect to CapEx guidance. I think at the start of the year, you talked about SEK 10 billion, but you've only spent about SEK 2 billion so far and yet your gross store openings plan doesn't seem to have really changed. I wonder if you still stick to that SEK 10 billion view.

No, we are revising that down. And right now, we're looking at 20% to 30% cut perhaps due to the circumstances, of course, that has happened. But we still remain focused on reaching the 2030 targets. And so there is just a delay in the investments. But -- and connected to that, I think it's important to mention the push we're doing in Latin America now.

The second question relates to input cost pressures, which you've indicated in the statement remain negative. I wonder if you can clarify. Do you expect those to become incrementally more negative as we go into the second half? And how should we think about your most recent pricing actions being in terms of offsetting that?

We have, throughout the quarter, being successful with having a very strong offering, and that has led us to increasing full price sales, which has mitigated some part of this -- the negative input factors. We believe that, that sort of overall journey will continue, but we also see that some of the negative factors are slightly worsening as the currency effect has sort of turned against us to a greater extent now lately. So all in all, I think on the sort of material and transportation side, it's fairly stable, but the currency side is the uncertainty right now.

And one final brief one, if I may. With respect to the June current trading, thank you very much for showing that number. And I think you flagged that the comparative base eases at least on a 1-year view. I don't know if it's fair to compare with 2019 given all of the disruption of COVID over the last couple of years. But it does look like compared with that year, June has been a lot softer than was implied in April and May. Are you seeing any signs of a softening consumer? Or do you put that down to the weather? Or are there any other particular factors we should bear in mind?

We attributed the absolute majority to -- in 2019, a weak sort of spring and a very strong start of the summer. So we have both years actually here, in 2021 tough comparative figures due to the sort of pent-up demand when stores opened again and in 2019, we had a very strong weather-driven demand during early June.

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

Two questions, if I can. In terms of looking at the OpEx profile, how do you think about managing the OpEx sales ratios into the second half if the consumer environment is slightly weaker, but we still got inflation running through the cost base in terms of people costs, et cetera. And then secondly, in terms of the long-term growth ambitions compared to balancing the short-term profitability, I noticed, for example, that you closed down the Treadler sort of sourcing opportunity, which I think some people thought was quite exciting. Could you just sort of talk about how you're balancing short-term versus long-term priorities, please?

Starting on the OpEx side. I think here, we can say that we're bringing with us some of the learnings from the COVID and the pandemic here. Some of the effects, particularly on the rent side, will continue throughout the autumn here that we have more flexibility, higher share of sales-based turnover-based rents and a good sort of setup when it comes to our agreements with our landlords and partners on the real estate side. On the -- how we run our stores, we do have a lot of learnings from also the COVID period where we look find more customer experience, enhancing features such as self-checkout and so forth. So that is part of our ambition to both combine them higher customer experience with also running the stores in an efficient and modern way.

And when it comes to long-term versus short term. You know what we are setting us up to achieve when it comes to the 2030 target on gross profitability and CO2 emissions. And of course, related to that is both growing our core, like we just explained the H&M brand and portfolio brands and so forth, but it's also about looking into new initiatives where we see that there is a need on the market and where we see that we have strength. Treadler was such an initiative where we know that we have a lot of competitive strengths when it comes to sustainability and supply chain, and we have learned so much of developing that business and doing a business that is more business to business. However, when looking into the progress, it has not been as expected. We have not been able to grow as fast as we would have wanted, meaning that right now, it doesn't seem that the market is there to the extent that we thought when it comes to sustainable supply chain. And that's why we in the midst of prioritizing different initiatives and that we, of course, had to do even more due to the environment and what happened in countries around us. We then decided to not continue with that. So we have a lot of learnings, and we will, for sure, try out new business models also moving forward.

On the OpEx point, if you can just follow up, is it fair to say that you've got a number of efficiency measures that you feel confident that you can improve your OpEx sales ratio in the second half of the year despite a more conservative consumer backdrop?

I was alluding to, we do have a number of initiatives ongoing to ensure that we always focus on shifting our primary resources towards creating a customer -- a good customer experience. So we are trying to optimize as many of the manual processes as possible. And this, we believe, will support both us from a customer experience point of view, but also with the intention to -- in an inflationary environment to mitigate parts of the cost increases.

And the next question comes from the line of Rebecca McClellan from Santander.

Yes. Just in terms of stock-in-trade, I think it was 19.2% on a rolling 12 months at the end of 2Q '18. What would that have been if you exclude goods in Russia and goods that were intended for Russia?

We quantified also in the Q1 report that at that time with the exchange rate and the ruble rate at that point in time, the stock in Russia was about SEK 1.1 billion. Since then, the ruble has appreciated a lot, which now gives us a sort of stock value in Swedish -- of just north of SEK 2 billion. And that is the absolute majority of the stock with relation to Russia. But there is a portion that we have had to move around and to adjust sort of the destination of as we had also garments bought for Russia that we now have diverted to other markets in primarily Europe.

And presumably, that will go into the summer sales because it's sort of spring/summer inventory?

I mean it is the same inventory as we have. So it's difficult to say exactly how that will play out. But as it is sort of incremental over what we had initially planned for these markets. We are a little bit more cautious on the markdown outlook for the third quarter. But it is too early to say because it is just more of what has been a strong assortment so far. So it's difficult to assess the exact effect.

The next question comes from the line of Richard Chamberlain from RBC.

A couple from me, please. First of all, can I ask a question on China. What are your plans now for your store -- number of store, store footprint there? Is it your intention now to focus much more on online sales in that market? That's my first one.

Overall, looking at China, we're still in a complex situation and not obviously on the levels that we would have wished for. But we believe [indiscernible] in the market as such. And we are now working hard with making sure that we have locally relevant also assortment and experience and we're in dialogue with different stakeholders. Looking at physical stores versus digital sales channels, this is also a market where we believe in both. So obviously, we are optimizing our store portfolio in this market, looking at the situation that we're in, same as we're doing in all other markets, but we truly believe that it will be a combination also here of physical stores and digital sales channel.

Okay. Can I just ask 1 as well on these tech initiatives. But I think you called out as costing SEK 500 million in Q2. What should we expect for those in the second half? Do you have a kind of equivalent cash flow figure for those investments? What is the sort of cash expense, if you like? And what was that sort of prior to the pandemic?

Well, as our digital business increases and most likely will continue to increase the investments in tech and tech is part of pretty much everything we do in all of our processes. You can expect an increased level of digital investments compared to 2019. So we believe that the level of somewhere around SEK 500 million above. Last year is a fair assessment of the rest of the year as well. And on the cash flow side, we have -- as we are sort of testing more and we are also seeing the tech as part of our just running operations, the majority of it will be taken on the result as it looks right now.

The next question comes from the line of [indiscernible] from Bank of America.

This is [ Aarya ] from Bank of America. I have 2. The first one, would you be able to give us some more color around development of store-based and online revenues this quarter? You said online continues to do well. But what does this mean in terms of like year-on-year growth? Is it still positive? And my second one would be, if you could please comment if you're seeing any changes in consumer behavior at all because I know you're closely monitoring the situation, obviously, in light of inflationary pressures and falling consumer confidence.

Okay. If you look at the online, offline, first of all, there is no off-line, everything is online, I would say, because the digital and the physical are being integrated and customers want both. So by separating the different channels doesn't really add any value. What we see is that the shift continues. And if you start from pre-COVID levels, of course, there is a much bigger e-commerce business than prepandemic so to speak whereas this year now when customers finally can get out and meet physically, and we see that they love to get back to stores. Of course, we have seen a fantastic recovery in physical stores and of course, still a good development online, but not as good as last year.

And when looking at customer behaviors and sentiment, of course, we're following that carefully. And right now, we cannot see a big impact only looking at inflation and the buying power, we see that customers really appreciate our customer offer. On the other hand, of course, we are a great option for affordable and sustainable fashion. So obviously, this is also a period in time for us to strengthen our position further. We should also remember that there are different factors affecting customer behavior right now. Of course, one part is the inflation but also the fact that restrictions have been lifted in many of the markets. And it seems like customers really like to socialize again go to physical stores again, addressing colorful fashion and having fun with their friends. So there's kind of different forces right now. But all in all, we see that they appreciate what we offer.

Next question comes from the line of Georgina Johanan from JPMorgan.

I've got 3 quick ones, please. I'll ask them one by one. The first one was with regards to the external factors into Q3, and I think you mentioned that material and transport was stable. Do you mean that the drag is similar year-on-year to that seen in Q2? Or do you mean that because of annualization that is now actually a stable impact on the gross margin year-over-year -- no impact, sorry, year-on-year.

What we meant is that the situation is not further worsening. That is what you can see on the -- sequentially on sort of the commodity side and the transportation side. But of course, inflated compared to a year back. And in addition to that, then we have a slightly more negative currency situation. So sequentially, not worsening, but sort of stable on an elevated level compared to last year.

Okay. Great. And my second question was just with regards to the price increases that you're putting through. Can you just comment on how the consumer is reacting to those fees if you're seeing any volume impact and sort of plans for pricing. You're still planning the same level of price increases going forward as previously?

Well, looking at how to mitigate the inflation, of course, we have to adjust our prices as well. We do it in a rather dynamic way, looking at customer sentiments per market and also our competitive position, obviously and trying to do that on different product types in different markets. What is most important for us, of course, when we do this, is to make sure that customers can still trust us to have the very best value for money. And with that, I mean, that combination of fashion price, quality and sustainability. And so far, it seems the feedback from customers is definitely that we still have that position and hopefully we can strengthen that position further. So we're following the development as closely as we can to make sure that we do this in the right way.

And my final question was just you helpfully called out the loss from Russia and Belarus and Ukraine in the second quarter. Should we assume a similar level of loss in Q3 and Q4? Or is that perhaps fading as you're taking sort of more mitigating actions in those geographies, please?

We have had a fairly flexible cost base in Russia. So we're quite immediately could sort of adjust costs. So I think this level is a good assessment also how it could look forward looking. But just I think a clarification on the gross margin is, of course, the input factors of what we buy right now that is not sequentially worsening. But of course, we saw a worsening during the early spring. And that is then, of course, coming in and starting to affect the sold margins right now. So it's -- that we see that these sort of input factors are starting to stabilize, but that is for what we buy now that will then be sold later, so to say. So that's a clarification regarding the sequential effect on the external factors.

Reminding of the U.S. dollar is the primary driver of input costs going further -- going forward.

Yes.

And the next question comes from the line of Rosie Shepherd from Retail Week.

I just got 1 for you. I'm just wondering how you're feeling about the prospect that a number of your key markets will be heading into recession sometime soon? And how are you preparing for that? And if you looking back to the previous financial crisis for any kind of lessons there.

Right. Yes. We have a long experience of also dealing with ups and downs now we're in a recession, and we see a lot of cost inflation. And of course, we are in a rather extreme situation looking at the industry as a whole or several industries. We see this also as a way to strengthen our position because we stand for value for money. And again, the combination of fashion, quality, price and sustainability. It's very clear that there is a demand for affordable and sustainable fashion. So we actually think that we can strengthen our position further and this is exactly what our customers need.

Okay. Is there any specific lessons you've taken from last time?

Well, for example, when adjusting prices like we have to do as well doing that in a very dynamic way. So meaning that we're doing it differently in different markets and being even closer to customer sentiment and feedback and making sure that we're competitive on each market is a good way forward and a great learning from before that we treat each market a little bit differently.

And the next question comes from the line of Demetris Demetriou from Schroders.

Yes. Congratulations on a strong set of results. Most of them have been answered. So I'll just post 2 quick questions, please. So firstly, on June trading, you mentioned that you obviously had a very strong base of comparison last year. I'm just trying to project in upcoming months because I think you also had some very strong trading post June 2021. So I was just going to ask if you think you're likely to experience this hard comparison basis in the full quarter or perhaps in later months as well or whether you are still aiming for growth in H2. And then my second question is on overall store count. I think this fourth or fifth quarter where the overall store base is coming down. I think you closed 19 stores in Q2. We discussed a bit about online, off-line in one of the previous questions. But should we [ read the past ] there is further optimization to do in the overall state and that the overall number is likely to keep declining to some extent as digital is strengthening.

Okay. If we start with the comparison base from last year, the intention with the comment we did was to say that June last year was extremely strong because at that time, we reopened close to 1,000 stores and people came back from the first or second or third wave last year. So the comparative base was very strong, 24%, whereas June and July was -- were 6%. So softer comparison. That's all I can say because we don't guide on top line. When it comes to store counts...

Right. I can elaborate a little bit on that. Obviously, as we spoke a little bit about looking into the second quarter, we see a strong recovery in the physical stores. And we see the strength of having both digital and physical. I would say that the recovery in physical is even stronger than we predicted. However, looking into the optimization during this year where we think we will end with net of minus 178 stores that still remains. So looking into the closures we have done and are doing in some of our mature markets, that strategy we think is still very right because during the pandemic, obviously, we have also seen the strength of the online stores. So that strategy remains. And moreover, we continue of course, looking into also next year and how to optimize the portfolio and those plans are still in the making.

And the next question comes from the line of James Grzinic from Jefferies International.

I just have a couple of clarification questions, really. I guess that, can you perhaps help us understand given what you're saying on imports. And I appreciate it's difficult to give us specifically a like-for-like inflation in spring/summer. But would you expect the rate of price rises you have to put through into autumn to define gross margins have to step up considerably relative to spring/summer. Anything you can give us on that front would be very helpful. And secondly, in that context, are you seeing anything competitively that you think would make that process more difficult or easier in the coming months.

Well, on the first question, we are sequentially adjusting prices, and we're doing it, as Helena said before, differently on different markets, being very close to listening to the customer and also ensuring that the customer always can feel secure to find the best offer with us. But we are sequentially increasing prices to mitigate some of the inflationary pressure. On the difficulty of doing it, I'm not sure I fully understood the question. But of course, the importance here is to be very, very close to the customer to ensure that we, over time, increased the perceived value and that we always can offer a stronger customer offer than competition, that's our overall goal.

I guess to follow up on that. Are you seeing competitors moving more rapidly on prices, which means that your own process is made simpler going forward. And I appreciate you have to continue to put through price rises. I was just wondering whether you can tell us whether the scale of that exercise needs to increase considerably given what you're saying on the year-on-year inflection in inputs.

Yes. We have -- I mean, competitors are increasing prices, and we've seen that they have done so throughout the spring. So that is sort of in the overall industry, and we are doing our best to ensure that we work as efficiently as possible to not having to put the full cost pressure on the consumer. And we believe that is a strength to ensure that the customers always find the best offer with us. But of course, we have seen that competitors have increased prices throughout the spring.

The next question comes from the line of Nick Coulter from Citi.

I have 3, and I'll ask them one by one, if I may. Firstly, on stock, with the 20% impact from forward orders, freight and Russia and also the 7% FX impact, is it right to think that you have less units of inventory, excluding those impacts and relative to this time last year? I'm just trying to get a sense of your stock positioning going into the next quarter.

Yes, that's correct. So a number of pieces we are down below last year. Yes.

Is the kind of the gross margin caution just about the kind of the indifference between COGS inflation and your willingness to pass it on and desire to maintain your value equation. Is that the kind of the root of the caution for the next quarter?

While it's always a balance about having -- making sure that you always have the best offering and the trust by consumers on the one hand and the other is profitability, of course...

No, I guess my point is you obviously have less units of inventory. So your markdown risk presumably would be commensurately lower on that basis.

It's not that simple, but I see what you mean. But on the other hand, as Adam said, we are a bit cautious. First of all, the comps -- last year, we reduced markdowns quite a bit in Q3 last year. But this year, we also have the Russian inventory that is floating around that could cause a risk for more markdowns but not necessarily.

Then secondly, just to clarify on Rich's question, if I may. Are you saying that the SEK 500 million run rate of SG&A costs that relate to tech and other initiatives that, that continues for the foreseeable future.

Well, it's difficult to say the foreseeable future. But with the -- of course, the growth of our digital business that tech is becoming an integral part of all of our business processes is likely to see that we are not getting down to the levels sort of pre-pandemic that we will be on a slightly higher level. So it's a fair assessment of at least how 2022 will look.

Just remind there, Nick, that it's not just the cost that also creates value. So you get the whole equation.

No, absolutely. No, I fully understand it's enabling what you're doing. Now I do understand. And then lastly, if I may, just to follow up on Adam's question on SG&A inflation. Are you able to give a very broad indication or sense of what proportion of cost inflation you're able to mitigate with efficiencies or by making choices, I guess, in the second half.

Well, not, I think, maybe to the level of detail that you expect. But I think as we mentioned, we have learned a lot during the last couple of years, and we see that particularly on the store estate with the adjustments we've done to the store portfolio and with strong lease structure that we have, that we will continue to bring benefits with us into the autumn to offset some of the cost inflation.

The next question comes from the line of Sarah Butler from The Guardian.

I just wanted to clarify something that others have asked about and obviously inflation coming through in the autumn. And can you give -- I know you've said that you're going to adapt that for different markets. But can you please give an average of what price rises will be seeing on the shop floor? And just to clarify exactly what is driving that for the autumn?

We prefer not to give that number on the shop floor simply because it looks different in different markets and on different product types. As I explained earlier, it's a more dynamic way of working with it of adjusting prices, always balancing the customer offer -- customer sentiment being competitive and of course, also having our profitability goal in mind so that would take steps towards that. So again, of course, we have to adjust certain prices, but it looks different in different markets.

And you can't give an average for -- across all of those taking into account all of those matters?

No, we prefer not to do that simply because it looks a bit different in different places in the world and on the different markets.

Okay. And sorry, and just on the key thing that's driving it for the autumn, will that be the CapEx -- sorry, the exchange rate? Or is that the other factors that have come through on materials and transport? Is that still feeding it for the autumn.

It's all of the above, all the external factors are negative, and that's why we see this inflation. Not just us -- I mean everyone sees it. And of course, we need to try to mitigate that. But as Helena said before, the most important for us is that customers should always trust that they could find the best offering at H&M.

Okay. Sorry. And do you expect the price rises to carry on into the spring for customers as these -- as your cost inflation gradually feeds through?

We don't want to speculate in the future. But as Adam said, we already see that some of the spot prices on raw materials are starting to come down, including cotton prices and spot prices.

The next question comes from the line of Dana Telsey from Telsey Advisory Group.

Can you please expand on the progress of supply chain easing, what you're seeing there and how you expect it to improve going forward? And then lastly, on real estate. On the store closures, is it globally? Is it concentrated in any one particular region? And do you have a target store size that you're looking to open go forward? How do you compartmentalize the real estate dynamic?

Starting on the supply chain side. We during last autumn needed to sort of adjust our purchasing pattern to ensure that we hit the intended in-shop week to sort of truly meet the customer demands with what should meet the customer when. So during late autumn, we prolonged our purchasing lead times. And we're now starting to see that with those prolonged lead times, we actually started to get garments to some of the destinations earlier than intended, which is for us a signal that we hopefully throughout the autumn we'll start to adjust back then to better tailored to the new situation and continue to have the high precision that we're after. So slowly but surely seeing some positive signals of the disruptions and disturbances easing and hopefully, then continuing so after the summer.

And when looking into store closures, as you know, we're both opening new stores and closing in some mature markets. And for this year, that means a net that is on minus. Looking into different markets. When we say mature markets, the biggest portion is within Europe. And then we see possibilities and opportunities to also open stores as we go. We work with this very dynamically, and that's why we have been also making sure that we can be even more flexible. So for example, look into lease agreements, we have more flexibility also to adjust as we go to see the development. Of course, we have never seen such a big shift that we've seen during the pandemic when it comes to also many customers going online. But again, now we see that many customers want to meet us both physically and digitally. So that means that we don't have a target store size in mind, but more that we adjust as we go, and we make sure that we can be flexible.

And the next question comes from the line of Anne Critchlow from Societe General.

I've got 3, and they're all on product returns from online. So I'll ask them one by one. So first of all, please, could you remind us whether you offer free online returns everywhere or whether you charge in some countries.

We do have -- if you are a member in our loyalty program, we have free returns.

And have you seen returns rates rise? And if so, where are they versus the pre-pandemic level?

Returns have started to normalize, but not at the level as they were before the pandemic. But the consumer behavior has started to slightly go back to pre-pandemic behavior, so to say.

Okay. And then finally, is it fair to say that a very high percentage of returns goes back through your stores?

Yes. And it's very different in different markets. And that's why one of the best opportunities we have to really combine the channel. So some stores they really function really well as sort of the combination of both selling but also being pick up and returning locations. So we see that different in different stores and different locations throughout the world. But in some stores, it's a very high portion.

And then just as a quick follow-up, what sort of countries do you see a very high proportion.

Well, it's depending -- and of course, it's where we have the higher store density, so in the more mature markets. Here, we can see that we have stores with high shares of online.

Next question comes from the line of [ Stephen Cherney ] from World Sports Activewear Magazine.

In the context of H&M's ongoing commitment to make garments that are sustainable as well as affordable, what is your reaction to the request from the Norwegian consumer authority that you reassess your use of the Higg Materials Sustainability Index to help present products as sustainable? And similarly, what is your reaction to the decision from the Sustainable Apparel Coalition to pause its use of the same index as a consumer-facing transparency program?

Well, of course, we are aware of the pausing of the Higg, and we have been involved in that for more than a decade. To my knowledge, it's the biggest collaboration that we have ever seen to move that needed when it comes to the industry moving towards a sustainable one. It's been collaboration with different companies, but also acidemia experts and NGOs. And this is now being paused. So we're following that development to see how to proceed. However, I would like to highlight that this is one out of many initiatives to move the industry towards a circular and sustainable one. And we have been investing and working hard and leading the industry towards transparency and traceability for many, many years. This is one of the initiatives but there's also other traceability and transparency initiatives that we're continuing with great excitement and engagement. So when it comes to Higg, let's see how that develops. But for sure, we see a future where we're guiding customers better so that they understand how to make more sustainable choices.

And the request from Norway?

Again, we're following that development through the Higg Index, who has those type of dialogue. So all we know for now is that we're passing it for now.

[Operator Instructions] We have another question from the line of Jie Zhang from AlphaValue.

Just 1 from my side. Could you give us an update on your click-collect and online return in-store services development? How many markets you offer the services for which brand those services are available, please.

Well, we are increasing the rollout as we speak. It's currently available in 20-plus markets and it's covering the absolute sort of biggest market when it comes to turnover and number of customers. And we intend to continue this rollout during 2022.

For all H&M Group's brand or only for H&M brand?

No, we're sequentially also rolling it out for other brands. But what I mentioned now was for the H&M brand with 20-plus markets currently.

And as there are no further questions, I'll hand it back to the speakers.

Well, thank you all very much then for participating in the conference call, and we wish you all a very nice summer.

This concludes the conference call. Thank you all for attending. You may now disconnect your lines.