PARIS — Hennes & Mauritz AB is spending big to keep growing.
The retailer revealed Wednesday that it will continue to boost long-term investments, including the expansion of its e-commerce business, growing the footprint of newer concepts such as & Other Stories, and expanding into new product categories.
“We will have a higher long-term investment in 2015 of between 400 and 600 million Swedish kroner [or between $48.5 and $72.7 million at current exchange],” Nils Vinge, the firm’s head of investor retailers, told analysts during a conference call Wednesday afternoon. The firm did not release overall investment figures.
“We are in an intensive investment phase in 2015 and probably in 2016, too,” added chief financial officer Jyrki Tervonen.
Plans for 2015 include the rollout of e-commerce for the H&M brand to nine new markets: Belgium, Bulgaria, the Czech Republic, Hungary, Poland, Portugal, Romania, Slovakia and Switzerland.
The firm will also focus on improving e-commerce functions in existing markets and enhancing its omnichannel experience with services like scan and buy.
H&M plans to open 400 new brick-and-mortar stores this year, up from 379 in 2014. It will continue expanding in existing markets, especially the U.S. and China, and open its first stores in Taiwan, Peru, Macau, South Africa and India.
The COS and & Other Stories brands will continue to grow their footprints faster than last year, H&M said, mainly in existing markets.
Following the launch of new sportswear and footwear ranges last year, H&M will unveil a new makeup, body care and hair care offering, H&M Beauty, in 900 stores in 40 markets this fall, replacing existing cosmetics lines with a new design concept.
H&M said after-tax profits rose 12 percent in the fourth quarter ended Nov. 30, capping a year that saw the Swedish retailer increase its market share and expand significantly in China and the U.S.
The fast-fashion chain posted after-tax profits of 6.2 billion Swedish kroner, or $858 million.
As reported, sales excluding VAT totaled 42.6 billion kroner, or $5.9 billion, during the three-month period, an increase of 17 percent.
For the full year, after-tax profits rose 17 percent to 20 billion kroner, or $2.9 billion, on the back of sales of 151.4 billion kroner, or $22.4 billion, up 18 percent. Sales increased in all of the company’s markets.
Dollar figures are converted at average exchange for the period to which they refer.
“Well-received collections for all our brands and continued strong expansion both in stores and online have helped increase our market share and have further strengthened our position in the market,” said H&M chief executive officer Karl-Johan Persson.
Analysts continued to hone-in on the firm’s gross margin, which dipped to 60.4 percent in the fourth quarter, from 60.8 percent a year earlier, impacted by its investments.
“Overall we believe these are disappointing results, as margins continue to decline,” Alliance Bernstein analysts Jamie Merriman, Robert Moorlen and Noelle Guo wrote in a research note in which they rated H&M’s stock “underperform.”
“For FY15, we expect matching the high level of constant currency growth achieved in FY14 will be increasingly difficult given a slightly lower level of store growth, smaller e-commerce launches and tough comparisons,” they continued.
“We expect continued margin compression in FY15 given the headwinds from the strength of the U.S. dollar, increasing levels of investment in long-term initiatives, amortization of capitalized expenses related to IT, cost inflation in Asia and few options for cost-cutting in stores,” the analysts wrote.
Sales in January are expected to increase by 14 percent in local currencies, H&M said.
“[This year] has got off to a good start with strong sales in both December and January. Although the increasingly expensive U.S. dollar will affect our sourcing costs, we will make sure that we always have the best customer offering in each individual market,” Persson stated.
H&M shares dipped 2.7 percent in early trading on Stockholm’s OMX Nordic market on Wednesday, but leveled out during the day to close down about 1 percent at 335.30 Swedish kroner, or $40.62 at current exchange.