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H&M Gets Ready for Other Stories

Despite disappointing third-quarter results, the fashion behemoth is ramping up store expansion and preparing to launch a new brand.

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PARIS — Despite disappointing third-quarter results, fashion behemoth Hennes & Mauritz AB is ramping up store expansion and writing a new chapter with & Other Stories, its new brand set to launch next year.

This story first appeared in the September 28, 2012 issue of WWD.  Subscribe Today.

On Thursday, the Swedish retailer said it would launch the concept, aimed at fashion-conscious women with a “personal look,” with eight to 10 stores in Europe’s style capitals.

“We’re focusing on the whole look. [For] women creating their look, the shoes, the bag and the necklace are just as important as the ready-to-wear,” Samuel Fernström, head of & Other Stories, said in an exclusive interview with WWD.

The stores, which will average 7,500 square feet in size, are to offer a wide range of categories and prices, including a large shoe and handbag offer, jewelry, accessories, cosmetics, lingerie and rtw, with “quality” and “attention to detail” being key, according to Fernström.

“We have different design teams focusing on different parts of the collection,” he said. The creative department for & Other Stories is based largely in Paris, and is led by head of design Anna Teurnell, although a second, smaller team is based in Stockholm.

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“Paris brings a tomboy look with poetic hints — tough yet feminine designs, while our atelier in Stockholm is responsible for a minimalistic touch, some raw edges, sensuality and sharp tailoring,” Teurnell explained.

Prices for & Other Stories “will start where H&M stops,” the company’s head of investor relations Nils Vinge said during a conference call Thursday.

They will nevertheless show a wider spread than H&M’s high-end concept COS, starting at 7 euros, or $9 at current exchange, for certain cosmetics, jewelry and footwear items, and 15 euros, or $19, for rtw. The most expensive products will cost around 195 euros, or $251, for shoes or handbags and 245 euros, or $315, for a leather jacket, for example.

Besides the new concept, H&M said it was ramping up expansion of existing banners for the current fiscal year to 300 stores, up from the 275 previously announced, with a focus on China and the U.S. Plans for 2013 call for the first H&M store in South America, in Santiago, Chile, and 10 to 15 percent net store growth worldwide.

The group has also pushed back the introduction of its U.S. e-commerce site for the third time. Instead of going live this fall, the launch is now scheduled for summer 2013.

H&M said this move was a result of its increasing focus on other online markets, meaning it needs more time for the U.S. portal. “It’s what’s best for H&M in total, and for the long term,” said Vinge, who would not be drawn on Web store rollout plans for specific countries. The retailer currently offers e-commerce in eight markets, in which it plans to launch a mobile store for smartphones and tablets next spring.

As of Aug. 31, the company operated 2,629 stores, of which 2,494 were under its core concept, while 55 were COS units, 55 Monki branches, 21 Weekday banners and four Cheap Monday stores.

H&M’s expansion comes at a cost. Increased investments, on top of unseasonal weather, currency effects and cost inflation, dampened the group’s third-quarter figures. Profits rose only 0.9 percent after financial items to 4.9 billion Swedish kroner, or $586.5 million.

The retailer noted that strong appreciation of the Swedish kroner against the euro led to a 200 million kroner, or $23 million, negative impact for the period.

All dollar rates are calculated at average exchange rates for the period concerned.

The results were 11.4 percent below consensus estimates, analysts Jamie Merriman, Anthony Sleeman and Richard Wielechowski from Bernstein Research noted.

Gross profit was 16.77 billion kroner, or $2.01 billion, up 16.7 percent compared to the prior-year period. Gross margin fell to 58.2 percent, from 58.6 percent, notably due to increased investments.

“Investments made up a larger proportion of sales than in the second quarter,” Vinge said.

“Cost inflation, primarily in Asia, and the strength of the U.S. dollar, plus a stepped-up investment in long-term initiatives…more than offset the benefit of easing cotton prices,” Bernstein’s analysts noted.

The firm cited improved sales in the Sept. 1 to 25 period, increasing 14 percent in local currency terms, following a 4 percent decrease in August.

H&M confirmed previously reported sales figures for the third quarter, from June 1 to Aug. 31, of 33.6 billion Swedish kroner, or $4.9 billion, a 10 percent increase in local currency terms and flat in comparable units compared with the prior-year period. Revenues grew 25 percent in the U.S., 50 percent in Russia and 7 percent in the U.K. in local currencies.

Shares in H&M closed down 5.8 percent to 232.20 Swedish kroner, or $35.22, on the Stockholm Stock Exchange as markets reacted to the worse-than-expected results.

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