H&M figures show dent in profit

London - Even colossal fast fashion companies the size of H&M are not immune to global events. Warm weather, a strong dollar, high markdowns, extended clearance sale times, all which led to a Ioss of profit for the Swedish high street giant.

Q1 saw a hefty 30 percent fall in net profit, owing to “substantially higher purchasing costs due to the strengthened US dollar and... increased markdowns”.

The company expects similar issues on the strong dollar/costs front in Q2 and Q3, until a “neutral or slightly positive” Q4, warned CEO Karl-Johan Persson in his trading statement.

H&M also said its total sales for March increased 2 percent year-on-year in local currencies but stressed combined figures for March, April and May will give a clearer picture “since Easter and weather effects during this period affect the comparability of an individual month”.

With new openings planned for 425 new stores in the 2015/2016 financial year, the company's operational costs remain high, and therefore likely to affect gross margin.

Persson said of its earnings so far: “Profits in this year's first quarter have been negatively affected by a continued very negative US-dollar effect which made our purchasing much more expensive, as well as by increased markdowns due to larger volumes of winter garments that remained as a result of the warm autumn.

“The negative dollar effect continues for purchases made for the second quarter 2016, although the negative effect has begun to gradually decrease due to the start of the annualisation of last year's strong US-dollar exchange rate. Should today's exchange rates continue, the effect of the US dollar on purchasing costs for the fourth quarter will be neutral or slightly positive compared to the corresponding quarter the previous year.”

Image:H&M