PARIS — Hennes & Mauritz AB is upping its investments for 2017 despite disappointing 2016 sales and profits, currency headwinds and a difficult overall climate for apparel retail that looks set to continue this year.
The fast-fashion retailer plans to increase its capital expenditure to between 14 billion and 14.5 billion Swedish kronor this year, or $1.58 billion to $1.64 billion at current exchange, compared with 13.3 billion Swedish kronor, or $1.57 billion, in the year to Nov. 30, its head of investor relations Nils Vinge told analysts and journalists during a conference call on Tuesday.
The sum will be invested in continuing to expand H&M’s store footprint, improving omnichannel functions and, as reported, introducing one or two new brands over the period, he said.
“For the retail industry,  was characterized by the ongoing shift into increasingly growing online markets,” he said. “We’re very pleased that our online business developed very well for all our brands, both as regards sales and profitability. From an already high level, we took further market share, which clearly proves that our investment in our online business has been successful.”
H&M rolled out its online store to 11 new markets in 2016, bringing the total number of countries in which it operates e-commerce to 35. “We continued integrating our store and online sales channels, and we continue investing for long-term profitable growth,” said Vinge. Online now represents a “significant” share of the retailer’s total sales in several of its markets, he said.
The retailer is now ramping up its omnichannel experience, and is integrating in-store returns for online purchases and mobile payments. Next-day delivery is now available in five countries, with more to roll out this spring, while H&M has debuted time-slot deliveries in Japan. In the U.K., it will test click-and-collect services this spring.
Digital developments are also helping H&M with its supply chain and back-office functions. It has invested in RFID, which it is testing before a rollout planned in 2018, and axiomatized warehouses, as well as advanced algorithms to help with elements like assortment planning, logistics and sales.
“During the year we identified areas within our customer offering, store experience and supply chain where we could have done better, and we are now methodically ensuring improvement,” said Vinge.
H&M said its net profits in the three months ended Nov. 30 increased 7 percent to 5.91 billion Swedish kronor, or $670.1 million, on net sales growth of 8.3 percent to 52.72 billion Swedish kronor, or $5.98 billion. Sales in local currencies rose 7 percent during the period.
“Markdowns in the fourth quarter had a negative impact of around 60 basis points,” said Vinge. “The increase in Q4 is mostly explained by increased markdown activity for autumn garments that did not sell as well as planned due to the warm start of the autumn.”
The impact of markdowns has continued into the first quarter of 2017, he added. Local currency sales increased 6 percent in December and 11 percent between Jan. 1-29.
For the financial year ended Nov. 30, H&M saw net profits fall 10.8 percent to 18.64 billion Swedish kronor, or $2.19 billion, on a 6.3 percent sales increase to 192.27 billion Swedish kronor, or $22.63 billion.
All dollar rates are calculated at average exchange rates for the period concerned.
The negative impact of purchasing costs is expected to continue for the first quarter of 2017.
“For fashion retail in general, 2016 was at the same time a challenging year in which various external factors – including geopolitical events – had a negative impact on retail trade in many markets,” Persson continued. “This was particularly visible in France, Germany, Switzerland and Italy as well as in the U.S. and in China. Since these markets represent a large share of our sales, this consequently had a great impact on our overall sales development.”
Vinge said that in China, H&M had seen improvements from November onwards, giving him a positive outlook for the year ahead. “Together with the online and the omnichannel, we still look very positive on our U.S. business, but of course there are a lot of uncertainties right now with the president and government,” he said. “Especially in a market where a lot of other brands are closing down, it opens up interesting opportunities.”
The company’s gross margin, a key measure of profitability, fell to 55.2 percent in 2016 from 57 percent a year earlier. Its operating profit decreased 11.6 percent to 23.82 billion Swedish kronor, or $2.80 billion.
H&M said it would introduce a new target of between 10 percent and 15 percent local-currency sales growth from 2017, replacing its previous growth target, which counted on 10 percent to 15 percent growth in store numbers each year, rather than a numerical ambition. This will better take into account the growing importance of online in the retailer’s portfolio, Vinge said.
Some 430 new stores net are planned for 2017, on par with 2016, including in five new markets – Kazakhstan, Colombia, Iceland, Vietnam and Georgia. Most of these will be under the H&M banner, with between 70 and 80 scheduled for the group’s other brands. Six new online markets are also planned: Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia.