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H&M’s Growing Empire: Retailer Plans Launch Of New Format in ’07

Hennes & Mauritz is moving out of its box once again.

PARIS ­— Hennes & Mauritz is moving out of its box once again.

The Swedish fast-fashion giant — which pioneered collaborations with designers Karl Lagerfeld and Stella McCartney — said Wednesday it would introduce a new “niche” format next year. Details were sparse, but the stores will operate under a separate brand name yet to be revealed. Nils Vinge, H&M’s head of investor relations, suggested the new brand would be more expensive and more fashion-forward than H&M’s existing offerings.

Vinge said 10 stores would open next spring to showcase the chain. H&M plans to explain the change to the market in greater detail this August, he added.

H&M, which operated 1,244 stores at the end of May, has thus far been reluctant to tinker with its successful single-brand format. But the retailer faces increasing competition from Inditex, owner of the Zara chain, as well as Bershka, Pull and Bear, and Stradivarius in Spain; Mango; Topshop in the U.K., and, in the U.S., J. Crew and the Gap brands, Gap, Old Navy and Banana Republic. Gap last year introduced Forth & Towne, and J. Crew has revealed plans to add a new, more casual brand called Madewell with its own freestanding stores.

H&M revealed plans for a new format while reporting that a spike in May sales spurred second-quarter profit 8 percent.

Profits for the three months through May 31 rose to 3.92 billion Swedish kronor, or $517.3 million, driven by a 13 percent sales gain in May after disappointing sales in March and April that H&M blamed on bad weather.

Overall, second-quarter sales gained 7 percent to 17.06 billion kronor, or $2.25 billion, and gross margin stood at 59.6 percent. Currency conversions were made at average exchange rates for the period.

In a conference call, Vinge said the “weak” sales meant stock-in-trade was higher and that “price reductions may be higher in the third quarter.”

Though in line with most analysts’ expectations, the results were significantly slower than those of H&M’s main rival, Inditex. Last week, the Spanish retailer, which opened its first store in Shanghai this spring, said sales in the three months through April advanced 20 percent, while its profits jumped 20 percent.

Vinge said sales had been weak in H&M’s important German and Austrian market, but added sales trends have accelerated recently, particularly in France, Spain and the Nordic markets.

He said sales in the U.S. were healthy and that H&M would soon have more than 100 stores in America. Eastern Europe is also showing promise, especially Poland, where H&M now operates 31 stores, Vinge added.

Vinge said H&M planned to increase stores another 13 percent through the end of the fiscal year.

In September, H&M will open its first stores in the Middle East — in Dubai and Kuwait — and it plans to open its first stores in Greece and Slovakia in 2007. The chain said it would enter China with two stores in 2007.

Vinge said H&M was ramping up initiatives to broaden its product offer, including a new shoe assortment that would be introduced in 2007.

He also trumpeted the chain’s collaboration with Madonna to wear H&M clothes offstage during her “Confessions” tour. The pop star will appear in H&M advertising in August and has helped design a tracksuit that H&M will sell in its stores in August.

This fall, a one-off collection by Dutch designers Viktor Horsting and Rolf Snoeren will hit H&M stores. Vinge said the line, which will include men’s and women’s wear, should sell about as much as Stella McCartney’s one-time collection for the chain last fall.

H&M stock gained 4.3 percent to close at 269.50 kronor, or $35.56, in trading on the Stockholm Bourse.