By and  on January 26, 2012

LONDON — Cost inflation, warm winter weather and unfavorable currency fluctuations dented profits at the Swedish fast-fashion retailer Hennes & Mauritz AB in the 2010-11 fiscal year.

The company said Thursday that profits in the 12 months ended Nov. 30 sank 15.3 percent to 15.82 billion Swedish krona, or $2.34 billion.

Group sales rose 1.4 percent to 110 billion krona, or $16.26 billion. Sales in local currencies, including value added tax, or VAT, were up 8 percent, while like-for-like sales were down 1 percent.

Chief executive Karl-Johan Persson said the company performed well in a challenging year.

“We increased sales by 8 percent in local currencies and continued to gain market share during what was one of the toughest years for a long time for the fashion retail industry in many countries,” he stated.

During a conference call later in the day, company spokesman Nils Vinge said, “In the fourth quarter, consumer sentiment was affected by economic worries in many of our markets. In addition, the weather was unusually warm throughout the autumn, and that led to markdowns on weather-related garments. Markdowns increased in comparison to Q4 2010.”

The current fiscal year has begun on a high note, with December sales including VAT up by 13 percent in local currencies. Like-for-like sales rose 4 percent.

Sales from Jan. 1 to 24 were up 12 percent in local currencies. The company said it is planning to open 275 stores this year, and launch a U.S.-based e-commerce site in the fall. Vinge said China is the market where H&M is expanding at the fastest rate. It has 80 stores in the market.

“Most indicators suggest that the macroeconomic environment climate in many of our markets will continue to be tough during 2012, but we have a strong belief in our offering and are convinced that H&M will continue to maintain its strong position as the year goes on,” Persson said.

Vinge warned, however, of a “likely risk” that markdowns will be higher in the first quarter this year compared with last year, due to the warm weather and to the extended winter sales period.

Persson said a number of factors put the squeeze on H&M’s margins in the past year. He pointed to increased purchasing costs for the fashion retail industry, but said that H&M chose not to pass them onto the customer.

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