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H&M Profits Soar 29% in First

Aided by lower sourcing costs during the wind-down of global textile quotas, Hennes & Mauritz said its first-quarter profits zoomed 29.1 percent to 1.5 billion Swedish kronor, or $217.1 million.

PARIS — Aided by lower sourcing costs during the wind-down of global textile quotas, Hennes & Mauritz said its first-quarter profits zoomed 29.1 percent to 1.5 billion Swedish kronor, or $217.1 million.

The Swedish fast-fashion behemoth also credited “significantly reduced” markdowns and a weak U.S. dollar for its accelerating profitability, with gross margins climbing to 56.8 percent from 53.7 percent a year ago. Operating profits increased 29.6 percent to 2.2 billion Swedish kronor, or $318.8 million, for the three months ended Feb. 28, while group sales rose 7 percent to 12.62 billion kronor, or $1.83 billion. Excluding currency impact, the sales increase stood at 8 percent. Dollar figures are at the average exchange rate.

During a conference call, H&M’s investor relations chief, Carl-Henric Enhorning, acknowledged that trade in Germany, its largest market, was slow, reflecting sluggish consumption there. By contrast, he described the U.S. business as “good, with improved profitability. We are looking to see a profit for the full-year 2005.”

March sales, up 20 percent at constant exchange, also suggest strong momentum going into the retailer’s second quarter.

H&M plans to open 62 stores in the second quarter, but “our greatest challenge is to increase sales in our existing stores,” Enhorning said. As of Feb. 28, H&M operated 1,069 locations, with Hungary and Ireland as its newest markets.

During a question-and-answer period, an analyst asked if H&M might reprise its guest-designer initiative, since last year’s collaboration with Karl Lagerfeld unleashed a shopping frenzy that bolstered November sales by 24 percent.

“We’re working on the possibility to do something in the autumn, but nothing has been decided yet,” Enhorning replied.

This story first appeared in the April 7, 2005 issue of WWD.  Subscribe Today.