H&M EXPANSION HURTS EARNINGS

Byline: Robert Murphy

PARIS — Investors punished Hennes & Mauritz AB, the Stockholm-based fashion retailer, Thursday on news that first-quarter profit tumbled 15 percent.
H&M shares closed down 16.3 percent in trading on the Stockholm Stock Exchange to close at $15.26.
The men’s, women’s and children’s retailer attributed the profit erosion — to $55.3 million for the three months ended Feb. 28 versus $65 million during the same period last year — to costs related to expansion in the French and American markets.
Meanwhile, revenue in the quarter increased 17 percent to $933.5 million, versus $800.9 million a year earlier. All figures are converted from the Swedish krona at current exchange.
H&M has aggressively expanded in the French and American markets over the last year. In the first quarter of 2001, the firm opened three new stores in France, including a flagship on Paris’s Boulevard Haussmann. In the U.S., H&M has opened 14 stores over the last 12 months and has designs to operate a total of 85 units in the Northeast by 2003.
“A substantial expansion in new markets is costly in the short term, but is an investment in future earnings,” said H&M in a statement. “The organizations in France and the U.S. are…prepared for continued strong expansion.”
H&M said the new openings in the two countries shaved $19.4 million off first-quarter profits, including $10.7 million in price reductions.
“It is difficult to correctly estimate the stock level in a new market,” the statement said. “A large volume of merchandise was planned for the U.S., as from a marketing point of view it would be extremely negative to end up in a shortage situation. H&M made large price reductions in order to make space for the spring assortment.”
Meanwhile, H&M said it was looking forward to a stronger second half, based on sales of the spring collection that “have been considerably better than previous year.”
The firm said it would continue its expansion push, with 43 stores scheduled to bow over the next three months, including 11 in the U.S., nine in the U.K., eight in Germany and four in France. By yearend, H&M says it will have inaugurated approximately 100 new doors worldwide.