PARIS — Shares in Hennes & Mauritz AB closed down 3.2 percent Thursday to 329 Swedish kronor, or $38.54, on fears of a slowdown in growth and soaring sourcing costs due to the increasingly robust dollar.
Strong comps, unusually cold spring weather in many of the retailer’s key European markets and calendar effects also contributed to worse than expected second-quarter results. The Swedish fast-fashion giant reported an 11 percent rise in fiscal second-quarter net profits to 6.45 billion kronor, or $757.6 million, for the three months ended May 31, despite steady sales growth that has continued into June.
Increased spending on omni-channel and other projects also took some wind out of the sails.
The Swedish fast-fashion giant reported an 11 percent rise in fiscal second-quarter net profits to 6.45 billion kronor, or $757.6 million, with strong comps, unusually cold spring weather in many of the retailer’s key European markets and calendar effects also negatively impacting its performance for the three months ended May 31.
Karl-Johan Persson, chief executive officer, called the outlook for the third and fourth quarter purchasing periods “very negative.”
“The U.S. dollar has strengthened substantially against most currencies, which has led to substantially increased purchasing costs compared to the corresponding purchasing periods in the previous year,” he said.
Revenues including VAT came to 53.2 billion kronor, or $6.26 billion, in the second quarter, up 20 percent and reflecting the weakness of the Swedish krona against most sales currencies in the group. In local currency terms, sales including VAT rose by 10 percent during the period, with calendar effects shaving off 2 percent points.
All dollar rates are calculated at average exchange rates for the period concerned.
Analysts frowned on the results, with Bernstein saying early Thursday that it expected the market to react negatively “given the miss of consensus expectations coupled with H&M’s increasingly negative view for H2.”
Commenting on the potential impact of average unit cost inflation on selling prices over the next two seasons, Nils Vinge, the firm’s head of investor relations, said during a conference call: “That is of course the million dollar question. For us, it’s always about having the best combination of fashion, price and quality in a sustainable way and we will never be the first ones to raise prices, so it will be very interesting to see what happens this [fall].”
Vinge said the company sees “huge potential” for both physical e-commerce channels. Around 400 new H&M stores will open this year, with a focus on China and the U.S. The retailer will break five new markets: Taiwan, Peru, Macau, South Africa and India. In parallel, eight new H&M online markets have so far been added this year. The addition of Switzerland this fall will bring the retailer’s total number of online markets to 22.
“We are investing a lot and adding and improving at the same time as we are expanding into new markets. We are also improving the customer offering and experience online,” said Vinge, citing the “scan and buy” function recently introduced in certain countries. H&M’s customer loyalty program – limited until recently to Sweden and Denmark, and introduced in Austria and the Netherlands last year – will be rolled out in Europe, he said.
Other ongoing long-term investments include new product volleys: H&M Sport, the extended H&M shoe range, and H&M Home, which this year will expand to 100 new stores, including in 10 new markets. The imminent H&M Beauty concept will progressively be rolled out in 900 stores in 40 markets as well as online, starting July.
Expansion for the other group’s brands remains focused on COS and & Other Stories, with COS to break four new markets this year. New banners may be in the pipeline, with Vinge confirming that the company’s new business department is looking into “concrete things.”