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H&M Profit Up; Adding Footwear

The Swedish fast-fashion giant reported sales growth for all its brands and plans to extend its H&M shoe offering.

PARIS — First sportswear, now shoes.

Hennes & Mauritz AB revealed Wednesday that it would further broaden its product offer this fall with the launch of an extended footwear range for women, men, teenagers and children. The line will be launched in selected H&M stores in nine countries — including China, the U.S., the U.K. and Sweden — and online.

At the same time, the Swedish fast-fashion giant will expand distribution of its beefed-up H&M Sport line in response to positive customer feedback. The extended range is available in around 50 stores, with 2,000 stores carrying ladies’ sports apparel.

The retailer started to reap the benefits of its heavy investment program in the fiscal second quarter, with net profits leaping 24.8 percent as its spring collections performed well at retail and it expanded its store network, including opening its first unit in Australia.

H&M posted after-tax profits of 5.8 billion Swedish kronor, or $892.3 million, in the three months ended May 31.

“We have had a good second quarter with a strong increase in both sales and profits and increased market share,” said H&M chief executive officer Karl-Johan Persson.

“All our brands — H&M, COS, & Other Stories, Monki, Weekday, Cheap Monday and H&M Home — enjoyed good sales development during the second quarter. We are very pleased that H&M Sport, which we are broadening further, continued to gain market share within the sports segment,” he added.

The retailer plans to keep up the heavy pace of spending, which has dented profits in recent quarters. In 2014, its long-term investments in IT, online, new formats and new concepts will increase by 600 million kronor to 800 million kronor, or $90 million to $120 million at current exchange, versus the previous year.

“Long-term investments increased in the second quarter compared to the second quarter last year,” Nils Vinge, head of investor relations at H&M, told analysts in a conference call.

“In absolute terms, the cost increase in the second quarter was similar to the increase in the first quarter of this year, but it did not have as big a percentage impact on results as in Q1. This is because Q2 is a much larger quarter, both in terms of sales and in terms of results,” he added.

H&M reiterated its plans to expand its store network by 10 percent to 15 percent annually, with a forecast 375 new stores in 2014, including its first units in India and the Philippines. Next year, H&M will enter South Africa and Peru.

It will also continue to grow e-commerce following the launch of online sales in France in March. The retailer will open online stores in Spain, Italy and China by yearend and plans to add eight to 10 online markets in 2015.

“We see these investments as very important for H&M’s future success. They cost a lot now but will be very important for H&M for many years to come. The long-term investments are aimed at further strengthening H&M’s market position and securing future expansion,” said Vinge.

The retailer reported operating profit rose 25.6 percent to 7.56 billion kronor, or $1.16 billion, in the second quarter. All dollar rates are calculated at average exchange for the period to which they refer.

However, external factors including foreign exchange rates and rising labor costs weighed on the gross margin, a key indicator of profitability. It eased to 60.8 percent in the second quarter from 61.1 percent in the same period in 2013.

As reported, sales including value-added tax in the second quarter advanced 16 percent in local currencies to 44.18 billion kronor, or $6.78 billion. Sales are accelerating in local currencies, having jumped 17 percent in April, 13 percent in March and 11 percent in February.

H&M said so far, sales in June have gotten off to a good start. Meanwhile, turnover in the U.S. rose 23 percent in the second quarter.

“We’re still a very small player in the U.S. market, even though we’re now nationwide and we have 313 stores and we’re expanding quickly. And we continue to take market share, we continue to see great potential for H&M. I think the U.S. shoppers have taken H&M to their hearts,” noted Vinge.

The retailer is teaming with artist Jeff Koons for the opening on July 17 of its flagship on Fifth Avenue and 48th Street in Manhattan, and this fall, it will launch its first collaboration with a U.S. designer. The hotly anticipated collection by Alexander Wang will hit stores Nov. 6.