H&M Q2 Profit Falters, Plans to Invest Online

In Reports, What's New, Industry News by Jeff Prine

H&MStockholm—Although H&M today reported a larger-than-expected drop in its second quarter profit, the specialty retailer said that June sales are off to a strong start and its online presence is being expanded.

For the quarter ended May 31, H&M posted a net profit of 4.66 billion kronor (about $723.14 million) from 5.22 billion kronor a year ago. That was below analysts’ average estimate for 4.88 billion kronor.

Net revenue was 31.6 billion kronor basically flat with a year ago. Comparable store sales fell 4%. According to the company, continued “substantial negative currency translation” effects occurred as a result of the continued strengthening of the Swedish krona against most of its sales countries’ currencies. The reported sales would have been about 1.8 billion kronor higher using the same currency rates as in the previous year.

Karl-Johan Persson, H&M’s chief executive, blamed the krona’s strength on the results.He also sales remained strong in Asia but that the overall revenue suffered due to the “continued challenging situation for the fashion retail industry.”

Moreover, like many North American retailers stated in their most recent quarterly reports, unusually chilly weather in March and April in Europe also hurt sales of spring collections. H&M said markdowns dragged down its gross margin to 61.1% from 61.7% a year earlier.

Nonetheless, June sales are “off to a good start,” rising 14% in local currencies between June 1 and June 17 versus the same period a year earlier.

Online Store in USA Opens in August

Persson said that although H&M had entered its third quarter with higher inventories than planned, June promotions had not started earlier than last year. While Persson said markdowns were selling well, new collections were doing better than expected.

“What’s great to see is that it’s primarily full-price, the new collections, that sells well,” Persson told Reuters. “That’s where we over-achieve. There may of course be pent-up demand from a cold spring, who knows. But it feels good.”

H&M is stepping up its plans to expand its online sales and plans to launch new web stores in several countries each year. “It is exciting countries that we are looking at, large markets when it comes to retail and online trade,” Persson said.

The online store in the United States is scheduled to open in August with additional countries added next year. The company also will open new COS stores in Turkey and Switzerland later this year.

“It’s a considerably faster expansion pace when it comes to web stores than we have had historically,” he said, adding H&M was looking not only at Europe but also countries such as China.

Persson added that H&M opened nearly 100 new stores in the second quarter, including its first in South America in Santiago de Chile.

“Although most of these long-term investments have not yet generated revenues, we see them as wise and necessary—all in order to build an even stronger H&M,” Persson said. “There is great potential in the growing online market.”


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