For the quarter ended Feb. 28, the fast fashion retail company said pretax profit rose 8% to 3.5 billion kroner (about $542 million), missing analysts’ forecast for 3.8 million kroner.
Net sales, excluding Value Added Tax (or VAT ) grew to 32.143 billion kronor from 28.392 billion kronor in the prior year. Sales including VAT increased 12% in local currencies.
Inventory Levels Too High?
Sales were up 10% in Germany and 15 % in the United States. Growth in France and the U.K. were 15% and 17% respectively. Sweden reported sales rise of 4 percent.
Gross profit margin narrowed to 54.9%, below a forecast of 55.3% and down from 55.2% a year ago.
According to CEO Karl-Johan Persson, ”Sales have got off to a good start with an increase of 12% in local currencies in the first quarter in a fashion retail market that in many places is still characterized by a challenging macroeconomic situation, and we have continued to gain market share.”
One of the successes has been the extended H&M Sport range which will be expanded into more countries.
H&M has targeted Australia, the Philippines and India as new markets this year and plans to roll out online sales in Spain, Italy and China.
Retail analysts, however, appeared disappointed in the 12% rise especially in light of a strong report from rival Inditex last week and in light of increased competition from rivals such as Primark, Forever 21 and TJX Cos. which was expanded through Europe.
“While part of this miss can be attributed to long-term investments, we believe it is also indicative of weak like-for-like sales performance and price investment, as the company tries to compete in the fast-growing and increasingly populous value apparel world,” Bernstein analysts said of the results.
“Sales performance does not seem to have improved in March, and the comps only get more difficult in April and May. Furthermore, the high inventory levels suggest H&M may see further margin pressure from increased levels of markdown.”