H&M

Hennes & Mauritz AB is aiming for a bigger brand portfolio.

This story first appeared in the October 3, 2016 issue of WWD. Subscribe Today.

In reporting lower third-quarter profits, the Swedish fast-fashion retailer said it planned to launch one or two retail brands next year to add to its existing H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories banners.

“There are lots of different ideas coming in, and we are working on several,” said H&M head of investor relations Nils Vinge during a conference call. “At the moment, there are two very interesting banners we are focusing on. We hope to launch one, maybe two of them next year.

“When it comes to new brands and development, we still see a lot of opportunities,” he said, without going into further detail.

H&M opened 211 stores in the nine months to August, and a total of 425 stores net are planned for 2016 as a whole. Without this expansion, Vinge admitted, sales in comparable stores were down “slightly” in the third quarter.

The group had a total of 4,135 stores at the end of August, including 3,784 under its core H&M banner.

The retailer on Friday reported that its third quarter profits were hit by increased markdowns and higher purchasing costs.

The Swedish firm said net profit fell 9.2 percent to 4.82 billion kronor, or $567.6 million, in the three months to Aug. 31, 2016. Operating profit dropped 9 percent to 6.25 billion kronor, or $735.9 million, resulting in an operating margin of 12.8 percent, compared with 14.9 percent a year earlier.

“The sales performance in the third quarter and increased markdowns due to a higher opening stock than planned had a negative impact on profit development,” stated H&M chief executive officer Karl-Johan Persson. “In addition, profits continued to be negatively affected by the strong U.S. dollar effect on purchasing costs.”

Net sales increased 6.4 percent to 48.98 billion kroner, or $5.78 billion, H&M said, while sales including VAT grew 8 percent in local currencies.

“Sales were good in most markets until mid-August,” said Persson. “Thereafter sales were negatively affected by unseasonably hot weather which continued into September, resulting in a challenging start to the autumn season.”

Sales including VAT in September are expected to increase just 1 percent in local currencies as unseasonably warm weather continues in many markets, the retailer said, discouraging the purchase of winter clothes.

H&M, which has been investing heavily in technology development and global expansion as well as rolling out newer store formats including COS and & Other Stories, said the pace of its investment, which has weighed heavily on its profits in recent years, is gradually beginning to subside.

“These big investments, which have burdened our profits for a long time, have been necessary since they have created a good and solid base for sustainable and profitable growth,” said Persson.

“We are investing across the board, and there [has been] a lot of investment in I.T. and technology; that is mainly where we’ll see the pace slow down going forward,” said Vinge .

In the first nine months of 2016, H&M saw net profit down 17.2 percent to 12.72 billion kroner, or $1.51 billion, while operating profit dropped 17.1 percent to 20.09 billion kroner, or $2.39 billion.

Sales in the nine-month period grew 5 percent, or 7 percent in local currencies, to 161.77 billion kroner, or $19.22 billion. Among H&M’s top-10 markets, reported revenues declined 1 percent in Germany, the retailer’s largest market, and dropped 5 percent in the U.K. and 7 percent in Switzerland. Sales were flat in France and China, a key growth market for the company where it opened 47 new stores between January and August. Chinese sales in local currency grew 5 percent, H&M said.

The strongest sales increases were seen in the U.S., where the company opened 30 stores in the first nine months of the year, and in Sweden. Both countries saw revenues increase 7 percent in reported terms.

Currencies are expressed at average exchange rates for the period.

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