STARTUP COSTS HELP DEFLATE HENNES & MAURITZ QUARTER
NEW YORK — Swedish fashion chain Hennes & Mauritz may be putting up stores in America, but it’s bringing its profits down.
On Thursday, the chain blamed startup costs and currency fluctuations for a dismal 11.6 percent earnings drop in its first quarter ended Feb. 29.
The announcement, however, was not surprising since H&M said last month that earnings would plummet about 12 percent. On March 30, the company launched its first U.S. store, on 51st Street and Fifth Avenue in Manhattan.
Earnings dropped to $77.1 million, or 6 cents a share, from $87.2 million, or 7 cents, a year ago. Dollar figures are converted from the Swedish krona at the current rate.
Revenues rose 13.6 percent to $949.2 million from $836.2 million.
In a statement, H&M said the period included start-up costs of $7.2 million to cover the opening of the 35,000-square-foot Fifth Avenue store, as well as its entry into Spain in early April.
Excluding the effects of currency fluctuations and the start-up costs, H&M said earnings increased 4.9 percent to $91.5 million. H&M also noted that it was going up against a 66 percent hike in 1999 first-quarter earnings, but it still called the results “not entirely satisfactory.”
Earnings were hurt by greater price reductions in the stores, coupled with higher product development costs. Excluding start-up costs, operating margin was 8.8 percent of revenues, versus 11.6 percent a year ago.
Despite the high costs of expansion, it may in the long run be worth it. H&M said in a statement that its entry into the U.S. and Spain has so far exceeded the sales plan and added, “The positive reception of the H&M concept in these countries means that the group sees great opportunities for expansion in these markets.”
Other planned U.S. openings include Palisades Center in West Nyack, N.Y., and Garden State Plaza in Paramus, N.J., later this spring. The firm operates 602 stores, with about 45 in Germany and Sweden.