WWD.com/beauty-industry-news/financial/trimmed-u-s-losses-help-boost-h-m-net-735913/

PARIS — Fast-fashion continues to race ahead.

This story first appeared in the March 27, 2003 issue of WWD.  Subscribe Today.

Helped by reduced losses in the U.S., net profits at Swedish behemoth Hennes & Mauritz vaulted 43.1 percent to $118.7 million, or 14 cents a share, in the first quarter ended Feb. 28. This compares with $82.9 million, or 10 cents a share, a year ago.

And the Swedish firm said Wednesday that its international expansion would continue at a brisk pace, with about 110 stores slated to bow in 2003, 47 of them in the second quarter. At the end of the first quarter, H&M operated 849 stores in 14 countries.

Operating profits in the quarter increased 41.5 percent to $168.4 million, up from $119.4 in the year-ago period. Sales advanced 12 percent to $1.37 billion, up from $1.22 billion a year ago. Dollar figures are converted from Swedish krona at current exchange.

“Our performance remains strong,” H&M chief executive officer Rolf Ericksen said during a conference call, emphasizing that improved full-price selling boosted gross margins to 54.4 percent of sales from 52.9 percent in the year-ago quarter. He attributed the gains to “higher fashion accuracy,” sharper inventory levels and improved delivery flows.

The results were well ahead of market expectations, but lower-than-expected sales growth in February of 10 percent dented the stock, which fell 4 percent in trading Wednesday to $19.45 on the Stockholm Bourse.

“They’re clearly not seeing any like-for-like sales growth in February,” noted Tony Shiret, analyst at Credit Suisse First Boston in London. But overall, he said the “fabulous” figures in the quarter reflect a big improvement in margins and suggest its “stupendous” growth should continue.

Ericksen acknowledged that the U.S. market remains a challenge, and that sales took a hit in February due to a series of storms and lingering cold weather in the Northeast. Pressed by analysts for specifics, he said losses in the U.S. narrowed to about $10.8 million from $14.1 million in the quarter, and that markdown levels were reduced versus a year ago. The company set a breakeven target for the U.S. market for the full year.

“This was perceived as a bit of a disappointment by some because H&M had reported breakeven already in the fourth quarter of 2002,” noted fashion and retail analyst Sagra Maceira de Rosen at J.P. Morgan in London. “We believe breakeven for the full year is achievable.”

Ericksen characterized America as an important expansion market, with two new units bowing this month in the Washington area alone and an additional nine planned for the second quarter.

“The American operations are on the right track,” he said. “Overall, we are not very disappointed with the situation. It’s still an improvement over last year.”

Ericksen also acknowledged that H&M’s foray into four new markets this year — Poland, Czech Republic, Portugal and Italy — would result in operating losses of about $10.8 million to $21.6 million, but that investments would not be as heavy as in the U.S. and Spain, where losses swelled to as much as $64.8 million in 2001.

“These will be serviced by neighboring markets,” he said. “We are not making a full setup.”

Asked about March sales and whether there was any indication of a so-called “CNN effect” related to the Iraqi war, Ericksen replied: “It’s a short period so far, but we have not found anything yet that we could call a war effect.”

The company said it is gunning for like-for-like sales growth of 3 to 5 percent in 2003, and added that favorable currency fluctuations would allow it to lower prices by about 2 to 3 percent.