GLOBAL SALES PROPEL H&M
Byline: Dan Burrows
NEW YORK — Though disappointed by slow growth and high overhead in the U.S., Swedish retailer Hennes & Mauritz AB reported first-quarter earnings that almost doubled on strong global sales.
For the period ended Feb. 2, the company reported net income soared 106.8 percent to $74.7 million, or 9 cents a share, compared with profits of $36.1 million, or 4 cents, in the year-ago period. Global sales grew 16.7 percent to $1.10 billion from $938.2 million last year.
Sales in the U.S. climbed 20 percent to $47.4 million from $39.5 million in last year’s comparable period. In a difficult economic environment that has given most U.S. retailers fits, H&M’s U.S. sales would seem to be enviable by comparison, but the company is not satisfied.
“Development in the U.S. market has been weak,” said chief financial officer Leif Perrson in a conference call with analysts. “It is a very important market — our third most important youth market after Germany and Sweden. But the market is still characterized by uncertainty and retail sales have been disappointing. We are also not satisfied with our operating costs, which are still too high.”
H&M opened two new stores in the U.S. in the first quarter — one each in Boston and Brooklyn — and plans to open two more this fall, with one on New York’s 34th Street and one in Harlem. With the addition of these units, the company says it will have an opportunity to reduce costs as it gains efficiencies. H&M receives 4.3 percent of its total sales from the U.S.
Excluding U.S. sales, Perrson was very pleased with the men’s, women’s and children’s wear retailer’s worldwide results.
“It is very gratifying that we have had such a good start to the year,” he added in the call. “Our ambition is that our customers should be able to find something new in our stores every day. Our spring clothes took off in February, with sales up 16 percent. This shows that our customers appreciated our collection. Great Britain and Germany are doing very well and the relatively new markets in France and Spain are developing according to plan.”
Germany, which is H&M’s largest market by far, accounting for 30 percent of total quarterly sales, posted a 16 percent gain to $330 million from $284.5 million in the year-ago period. Great Britain, which contributes 7.8 percent to the total, swelled 41 percent to $85.4 million from $60.6 million. And, on the company’s home turf, Sweden, which represents 11.3 percent of the total stake, sales inched up 1.4 percent to $123.8 million from $122.2 million last year.
With stores also situated in Norway, Denmark, Switzerland, the Netherlands, Belgium, Austria, Luxembourg and Finland, H&M derives 89 percent of its sales from outside its home country and continues to expand outside its borders. In the first quarter, the company opened seven new stores — two in Germany, two in the U.K, one in France, and the aforementioned two in the U.S. — and closed two, to bring its total unit count to 776. In last year’s first quarter, H&M opened six stores and closed one.
Inventories that were 6 percent below year-ago levels allowed for considerably lower price reductions that lifted gross margins to 52.9 percent. Additionally, operating results in all of H&M’s constituent countries improved compared with last year, and the results before tax were positively affected by currency translation effects due to the weakened Swedish krona. H&M generated positive cash flow of $47.9 million.
Looking to the second quarter, H&M plans to open 26 new stores, with seven in Germany, six in France, and two each in the U.K, the Netherlands, Belgium, the U.S. and Austria. One store each will be opened in Norway, Denmark and Finland. By yearend, the company plans to open approximately 90 new stores.