Irina Shayk

PARIS — Hennes & Mauritz released stronger-than-expected fourth-quarter results on Friday but flagged ongoing challenges in trading conditions, with more than 1,000 stores temporarily closed.

“The ongoing restrictions along with the many temporary store closures will have a substantial negative impact on the first quarter,” said chief executive officer Helena Helmersson, speaking on a phone call with analysts to discuss the company’s full-year performance.

The company said 36 percent of its sprawling retail network is temporarily closed, or 1,800 stores. Sales in the Dec. 1 to Jan. 27 period were down 23 percent in local currencies compared with the same period last year.

The company posted a profit of 2.48 billion Swedish kronor, or $300 million, in the fourth quarter, from Sept. 1 to Nov. 30, and executives touted a strong financial position at the end of the year.

“With strong, profitable online growth and good cost control we succeeded in ending the year in profit and with a strong financial position,” Helmersson said.

Analysts said fourth-quarter results were better than expected thanks to lower operational expenditure than forecast, but noted the sales update was weaker than expected.

“Recent trading is in line with our fairly cautious estimate,” said Richard Chamberlain of RBC, noting the outlook was “tough.”

The group, which operates Cos, Monki, & Other Stories, Arket and Weekday in addition to H&M, has been cutting costs and renegotiating leases for its retail network, efforts that drew praise from analysts Friday, who singled out cost control as a strong point of the earnings report.

H&M has delivered another material profit beat” over the quarter, noted analysts at Berenberg, citing profit after financial items of 3.66 billion Swedish kronor.

“The beat looks to be driven by better cost control,” Berenberg added.

Chamberlain also praised the group’s ability to control costs.

“Cost control is very impressive and with omnichannel and integration initiatives progressing, it should still see a fairly strong rebound in earnings post the pandemic,” said RBC Europe.

H&M plans to open around 100 new stores this year, and 350 units are set to close, mostly in markets where it is well established. Executives said they would continuously evaluate the fleet of physical stores, noting they had seen an interest from customers in returning to shop in person when possible. Integrating digital shopping avenues with stores is key to their strategy, they said, noting that customers who had embraced online shopping during the lockdowns were happy to return to the stores.

“What is most important for us when it comes to these plans is really the integration of the channels,” noted Helmersson.

As the company seeks to modernize operations, executives are interested in using artificial intelligence to get a better idea of what customers want so the company can react more quickly, added the CEO, noting this would be a key focus.

When it comes to sustainability efforts, Helmersson said that the drive represented more than appealing to consumers.

“Investments and hard work in sustainability is definitely to meet customer demand but obviously also to build resilience in our business as a whole,” she said.

H&M Group previously reported a 10 percent decline in fourth-quarter sales in local currencies, trumpeting a strong recovery for much of the period, before the second wave of lockdowns hit, disrupting business.

Sales totaled 52.54 billion Swedish kronor, or $6.24 billion, during the period. A 3 percent sales decline in the first part of the quarter deepened to a 22 percent drop as a new wave of coronavirus measures swept across its markets.

The Swedish fast-fashion retailer had outperformed expectations in the previous quarter with stronger full-price sales, a key issue for a company that had been trapped in discounting spirals in past years. The retailer has been working to overhaul operations, improve digital services and spruce up its offer. Signs of improvement had begun to emerge as the coronavirus crisis hit.

Analysts have been forecasting a modest pace of recovery for the fast-fashion industry.

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