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H&M sees big quarterly profit drop as stores attract fewer shoppers

31 January 2018

Swedish fashion retailer Hennes & Mauritz (H&M) posted almost two-fold increase in sales in India to 1,179 million Swedish krona (over Rs 955 crore) for the fiscal ended November 2017, thus making the country one of its fastest growing markets.

H&M has lagged behind competitors in the move to online sales and although its digitalization process is in full swing now, growing online sales aren't fully compensating for reduced footfall to its stores. This corresponds to 2.41 krona per share in the quarter, compared to 3.57 krona per share previous year.

Swedish clothing giant H&M is launching a new brand called Afound. Meanwhile, full-year profits were 13% lower at SEK20.8 billion.

The company noted that weak sales development within the H&M brand's physical stores lead to increased markdowns and handling costs which had a negative impact on the result in the quarter.

Inditex has consistently outperformed its Swedish rival in recent years, helped by having its manufacturing bases close to its distribution centre in Spain so it can get new designs to its stores within weeks and better manage online sales.

H&M's gross profit margin for the financial year to November 30 fell to 54 percent from 55.2 percent a year earlier, in contrast to the Inditex gross profit margin which slipped only slightly to 57.4 percent for the nine months to October 31.

No Buy       Proportion of H&M buy ratings has dropped to the lowest since at least 1999              Source Data compiled by Bloomberg
No Buy Proportion of H&M buy ratings has dropped to the lowest since at least 1999 Source Data compiled by Bloomberg

"The industry's changes will challenge everyone and that will not be any different in 2018", he added. H&M also stated it planned to expand its online business.

Karl-Johan Persson, chief executive of H&M, said: "2017 was a year where we made more steps forward and did more groundwork for the future, but we have also made some mistakes that have slowed us down".

Persson confirmed in his statement that while H&M's online sales performance during 2017 was strong, sales at the physical H&M stores disappointed and weighed on the overall figures.

H&M now has an online presence in 43 markets, but physical stores in 69. "And it will leave the bears questioning why H&M still enjoys a "growth stock" rating", and they also market the company as "underweight". It will be launched in Sweden, with a first store in Stockholm opening in parallel with a digital marketplace in Sweden.

The company opened one new store in Bulgaria in fiscal year 2017. Afound is a shift in strategy following the last new format, Arket, which sells higher-priced general merchandise, including houseware, purses and coffee.

The H&M Group's sales including Value-Added Tax for the quarter increased by 3 percent in local currencies during the fourth quarter.

H&M sees big quarterly profit drop as stores attract fewer shoppers