PARIS — Hennes & Mauritz AB said net profit fell 18 percent in the second quarter as a drop in consumer spending forced many fashion retailers to slash their prices — at a time when rising input costs are already pressuring margins.
During the three months ended May 31, net income fell to 5.75 billion Swedish kronor, or $917 million, from 7.04 billion kronor, or $960 million, during the same period in fiscal 2010. Dollar amounts are calculated at average exchange rates for the periods in question.
The Swedish high-street retailer had published preliminary data last week showing sales excluding value-added tax in the second quarter rose 2 percent to 27.6 billion Swedish kronor, or $4.4 billion, reflecting the sharp appreciation of the Swedish currency during this period.
Sales varied sharply from month to month, with April boosted by the Easter weekend and warm weather, which brought forward purchases and thereby dampened the retailer’s performance in May.
“We continue to gain market share in a very challenging market, which proves H&M’s strong position,” stated chief executive officer Karl-Johan Persson.
H&M recently opened its first stores in Romania and Croatia, and plans a net addition of around 250 stores for the 2010-2011 financial year as a whole, with China, the U.K. and the United States slated to be the largest expansion markets. The retailer plans to open its first unit in Singapore this fall.
Persson said consumer spending had been impacted by rising interest rates, higher energy prices and austerity measures in many economies. “During the spring, the fashion retail industry has been characterized by many price campaigns and special offers,” he noted.
However, H&M said markdowns in relation to sales were stable in the second quarter versus the same period a year earlier.
Gross margin fell to 61.7 percent in the second quarter from 65.9 percent at the same time last year, hit by rising cotton prices, reduced spare capacity at suppliers, higher transportation costs and a negative U.S. dollar effect. A change in the firm’s currency hedging policy also had an impact of 50 basis points on the margin, it added.
H&M has stuck to its policy of not passing on cost increases to customers in favor of boosting its market share in the longer term.
During a conference call, Nils Vinge, head of investor relations, noted that many of H&M’s peers have started to raise prices in the face of higher cotton and transportation costs and capacity constraints in the supply chain. However, he remained tight-lipped on future pricing.
“Our profitability remained strong with an operating margin of 20.3 percent despite strong negative effects from many external factors that were beyond our influence,” said Persson. The operating margin was down from 25.8 percent in the corresponding period a year earlier.
Selling and administrative costs rose 14 percent in local currency terms in the quarter to 11.4 billion kronor, or $1.8 billion, due to ongoing expansion, long-term investments in marketing, IT and online and catalogue sales. A provision of 248 million kronor, or $39.5 million, for the company’s recently launched incentive program for employees had a negative impact on profits, said Persson.
Including franchised operations, the company has about 2,300 stores in 40 markets.
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye