H&M continues to struggle, profit and sales drop in Q4

Sales at Hennes & Mauritz AB (H&M) including VAT amounted to 58,481 million Swedish krone (7,431.4 million dollars), down 2 percent in local currencies. Sales including VAT in the financial year 2016/2017 increased by 4 percent or 3 percent in local currencies and amounted to 231,771 million Swedish krona (29,453 million dollars). Sales excluding VAT amounted to 50,407 million Swedish krona (6,405.7 million dollars) in the fourth quarter and to 200,004 million Swedish krona (25,416 million dollars) in the financial year 2016/2017.

"Our performance during 2017 was mixed, with progress in some areas but also difficulties in others. We delivered growth of 3 percent in 2017, which is clearly below our expectations. In the fourth quarter our sales overall decreased by 2 percent in local currencies. Our online sales and our newer brands performed well but the weakness was in H&M’s physical stores where the changes in customer behaviour are being felt most strongly and footfall has reduced with more sales online. In addition, some imbalances in certain aspects of the H&M brand’s assortment and composition also contributed to this weaker result,” said Karl-Johan Persson, H&M CEO in a statement.

Review of H&M’s Q4 and full year results

Gross profit amounted to 27,929 million Swedish krona (3,552 million dollars) against 30,027 million Swedish krona (3,818 million dollars) in the fourth quarter last year, corresponding to a gross margin of 55.4 percent against 57 percent. For the financial year, gross profit increased to 108,090 million Swedish krona (13,737 million dollars), corresponding to a gross margin of 54 percent.

Profit after financial items in the fourth quarter amounted to 4,873 million Swedish krona (619 million dollars) against 7,409 million Swedish krona (942 million dollars). Profit after financial items in the full-year amounted to 20,809 million Swedish krona (2,646 million dollars) against 24,039 million Swedish krona (3,057.5 million dollars) last year. H&M said, profit during the year was negatively affected by a weak sales development in the physical stores of the H&M brand. This, the company added, is mainly due to the ongoing shift in the industry, in which sales are increasingly taking place online but where the group’s online share does not yet compensate for the reduced footfall to stores.

H&M expands global online presence, to launch Afound this year

H&M’s ninth brand Afound will be an off-price marketplace offering a broad and diverse range of discounted products from popular fashion and lifestyle brands for women and men, from external brands as well as the H&M group. With a focus on styling and inspiring presentation, as well as attractive offerings from brands in different price segments, Afound, H&M said, will offer a new engaging shopping experience. Afound’s marketplace will be launched during 2018 online in Sweden and with physical stores starting in Sweden. The first store will open on Drottninggatan in Stockholm.

"The H&M group is developing new brands – we now have eight brands that are all scalable – and we will soon launch our ninth brand, Afound," added Persson.

In 2017 H&M’s online store was opened in further eight new markets: Turkey, Taiwan, Hong Kong, Macau, Singapore, Malaysia, Cyprus and the Philippines and the H&M online store is currently available in 44 markets including Kuwait which opened in December 2017. The company said that online expansion will continue in 2018 to among others India and via franchise partners to Saudi Arabia and the United Arab Emirates.

Five new H&M store markets were opened in 2017: Kazakhstan, Colombia, Iceland, Vietnam and Georgia and new H&M store markets in 2018 will be Uruguay and Ukraine. For the full-year 2018 approximately 390 new stores are planned to open, with a primary focus on growth markets. Approximately 170 store closures are planned as a part of the intensified store optimisation plan. The net addition of new stores will amount to approximately 220 (388). Most of the new stores in 2018, the company added, will be H&M stores, of which 45 will have H&M Home shop-in-shops, while approximately 95 stores will consist of the brands COS, & Other Stories, Monki, Weekday, Arket and Afound. In 2018, seven standalone H&M Home stores are planned to open.

Current quarter sales expected to rise 1 percent

Sales including VAT in the period December 1, 2017 to January 31, 2018 are expected to increase by 1 percent in local currencies compared to the corresponding period the previous year. The company said, in view of the high level of stock-in-trade on the closing date of November 30, 2017 and weak sales at the beginning of the first quarter 2018, it is expected that markdowns in relation to sales will increase by around 1.5 - 2.0 percentage points in the first quarter of 2018 compared with the same quarter last year.

The board of directors has decided to propose an unchanged dividend of 9.75 Swedish krona (1.24 dollars) per share to the annual general meeting on May 8, 2018, corresponding to 99.7 percent of the group’s profit after tax.

Picture:H&M website